There has been a lot of criticism, if not outright slander, leveled against the notion that dairy farmers need a farm milk price that reflects the average cost of producing milk, specifically the Federal Milk Marketing Improvement Act of 2009 (S1645).
Some call it welfare. Other call it anti-competitive or un-American or complain that it would guarantee a profit for dairy farmers and stifle innovation. Still others say it would raise dairy product prices so high that people won’t buy them or that it would take food out of the mouths of the poor.
First of all, S1645 is no guarantee of profitability. It uses national average cost. Some producers have a higher cost and some have a lower cost. It would not stifle innovation. Farmers still want to be profitable. It is not welfare any more than minimum wage is welfare.
Anti-competitive? Dairy is already a controlled industry. To put cost of production into historical perspective, in 1980 the total economic cost of production was $12.64 per hundredweight (cwt) while the gross value of milk was $12.95 per cwt.
In 1990, the total economic cost of production was $14.73 per cwt. while the gross value of milk was $13.70 per cwt. In 2000, the total economic cost of production was $18.02 per cwt. while the gross value of milk was $12.63 per cwt. In 2009, the total economic cost of production was $22.28 per cwt. while the gross value of milk was $12.81 per cwt.
The second glaring misconception regards consumer prices. The standard industry scare tactic is that if farm prices go up, retail prices will soar, and consumers won’t be able to afford milk. Of course, the industry will do this as an excuse generated by greed and after all, the competition and efficiency doctrines do not apply to them.
Let’s look at some US City Average Retail Prices from Dairy Market News. January 2008, after several months of record high prices, whole milk $3.87 per gallon, butter $3.08 per pound, processed cheese $3.99 per pound, natural cheese $4.62 per pound, and ice cream $4.14 per gallon.
Compare this with September 2009, after months of farm milk prices 40-50 percent lower than late 2007, whole milk $2.98 per gallon, butter $2.81 per pound, processed cheese $3.82 per pound, natural cheese $4.61 per pound, and ice cream $4.24 per gallon.
As you can see, the only real price signal is in fluid milk which varies widely between markets. Manufactured retail milk product prices do not vary much regardless of farm milk prices.
The main problem is that farmers have no money or power while processors have plenty of power and all the lobbying money that they need at the farmer’s expense.
Gerald Carlin, Dairy Farmer