PENNSYLVANIA FURNACE, Pa. — It was a full house in the College of Agricultural Sciences Exhibits Building Theatre, as dairymen, industry professionals and agricultural organizations filled the room to hear testimony on House Bill 1265 and seek answers for declining dairy prices.
The House Agriculture and Rural Affairs Committee and Senate Agriculture and Rural Affairs Committee held a joint informational meeting on dairy industry issues and HB 1265 Aug. 17, during Ag Progress Days.
Pennsylvania Agriculture Secretary Russell Redding opened the floor with remarks on the current dairy industry in Pennsylvania, reiterating sentiments of low prices and tight margins felt by producers across the commonwealth. Current market conditions, combined with current grower conditions, have resulted in very tight margins for dairy producers, said Redding, noting drought conditions many growers are experiencing in the state.
Charles Nicholson, a professor of supply chain management at Penn State University, highlighted four main challenges to growth in Pennsylvania dairy production.
Pennsylvania dairy production showed a negative growth around -3.1 percent from 2000 to 2015 while New York is showing growth of around 20 percent and Wisconsin around 25 percent, according to National Agricultural Statistics Service data presented by Nicholson. He said Pennsylvania’s dairy production numbers are similar to 15 years ago.
The second challenge is a need to address capacity issues, he said. Slow milk production growth does not encourage investment in facilities and some periods of insufficient capacity led to dumped milk. A third challenge is a decline in the use of Class I milk, or fluid milk. Reductions in higher value milk use have had an effect on Pennsylvania milk prices.
The fourth challenge is the cycle of farm prices, margins and profitability. In 2014, dairy producers spiked an all-time high in prices before dropping in 2015 and 2016. The margin cycle is almost identical to dangerously low prices that were seen in 2009 and 2010, said Nicholson. “How long is it going to take us to get to recovery and how much recovery are we going to see?” asked Nicholson.
Some dairy producers feel some of that price recovery could be found if new legislation is passed. Sponsored by Rep. John Lawrence, R-West Grove, HB 1265 would require milk dealers, in addition to cooperatives who sell farmers’ milk, to provide the farmers a written statement “of the specific dollar amount of state-mandated premium included in the payment for milk.”
Pennsylvania dairies are awarded an “over-order premium” — an additional $1.85 per hundred pounds of milk or 16 cents per gallon — as an incentive for milk produced and sold within Pennsylvania. Lawrence said in his testimony, the idea behind this premium was that Pennsylvania consumers might be willing to pay more per gallon knowing they were helping out the Pennsylvania dairy farmer.
However, according to Lawrence, “many family farmers do not know how much, if any, of that state-mandated money is actually getting back to them. Many have said to me that the money is ‘lost in the system’.” Current Pennsylvania legislature protects cooperatives from disclosing specific dollar amounts of state-mandated premiums collected in a milk check.
The push is for more transparency between producers and cooperatives, allowing producers to see what dollars are being generated and who is benefiting.
Addressing earlier testimony by Dairy Farmers of America, one of the largest dairy cooperatives in the state, Lawrence refuted DFA’s opposition to the bill. DFA Northeast testified in June, that premiums from all members (in Pennsylvania and out of state) are collected and combined. After calculating marketing expenses, money is paid to its members in the form of market-driven premiums.
By law, DFA is allowed to blend proceeds of all sales and make payments to farmers as determined by farmer members in their cooperative agreement. However, Lawrence said Pennsylvania farmers should be getting the over-order premium “on top of whatever market driven premium DFA negotiates.”
“I do take issue with DFA’s stated desire to pool the Pennsylvania-created and mandated over-order premium with out of state dairy farmers, that is a key reason to support HB 1265,” Lawrence said.
Land O’Lakes representative, Tom Wegner, said Pennsylvania Milk Marketing payments only represent 10 percent of its member revenues. While the Land O’Lakes Carlisle, Pennsylvania, plant has a strong presence in the Pennsylvania dairy industry, Wegner said Land O’Lakes is remaining neutral on its stance, but will comply with whatever the final ruling may be.
Support from Farm Bureau and PennAg
Pennsylvania Farm Bureau (PFB) and PennAg Industries support the transparency suggested by HB 1265. “We are all hurting across the industry,” from egg production, to crop production and agricultural service, said PennAg Executive Vice President Christian Herr, adding PennAg would like to work with legislation that supports all agricultural industries.
PFB President Rick Ebert said even if prices were to rebound, things would remain tight as farmers work their way out of debt.
Justin Risser, a dairy farmer and president of the Professional Dairy Managers of Pennsylvania, said the current permitting process puts the state’s dairy farmers at a competitive disadvantage with other high-producing states like New York, Michigan and Wisconsin. But he also pointed to the need for more processing opportunities in the Commonwealth and encouraged lawmakers to adopt an aggressive economic development policy to achieve that goal.
Amending HB 1276
“Cooperatives really have carried the burden of balancing the market,” said Redding. “There is no way you can keep the Class I markets that we enjoy in Pennsylvania without having a place for those other classes of milk.”
Redding suggested an amendment to HB 1276: “We suggest, on one side, transparency on the premium and how it gets to the producer and, on the other side, to acknowledge that there is also an infrastructure in place that has to be built and maintained and that building and maintaining is done by our cooperatives in Pennsylvania.”
The bottom line is profitability, and Redding also could like to see changes to the federal Margin Protection Program. There is not enough data to have a basis for a regional feed pricing system which could help producers received a better premium. Redding suggests seeking government funding for a survey to determine that basis.
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