House committee holds hearing in response to milk price plunge

by Keith Nunes
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WASHINGTON — The low price of milk that dairy farmers nationwide are receiving was the focus of a hearing conducted by the House Committee on Agriculture’s Subcommittee on Livestock, Dairy and Poultry on July 14. Noting that in May 2008, the price of milk paid to dairymen in the Northeast was $18.18 per cwt, Representative Joe Courtney of Connecticut said a year later it was $12.18 cwt.

"I don’t need to tell the committee what they already know," he said. "Dairy farmers can’t survive with prices that low."

Putting the situation in a much starker light, the National Milk Producers Federation testified that dairy farmers across the country are facing an unprecedented financial catastrophe.

Tom Wakefield, a dairy farmer from Bedford, Pa., and a board member of the N.M.P.F., told the subcommittee that the sudden loss of export markets, due largely to the global economic crisis, has plunged farmers into financial crisis, as their prices have dropped along with lost export markets.

"Because the U.S. market had gradually increased production to respond to the international market signals being sent in recent years that indicated higher demand for U.S. dairy products, U.S. producers found the rug pulled out from under them" when those export markets largely evaporated last fall, Mr. Wakefield said.

He told the congressional panel that the pricing crisis is not due to a sudden surge in imports, which are actually down overall from recent years as a percentage of the total market.

Mr. Wakefield also discussed potential responses to the situation, reiterating the N.M.P.F.’s request last month that the U.S. Department of Agriculture temporarily raise the purchase price levels for cheese and nonfat dry milk in order to return higher prices to farmers.

In a letter sent June 26 to Secretary of Agriculture Tom Vilsack, the N.M.P.F. requested that the U.S.D.A. raise the purchase price for cheese blocks to $1.19 per lb from $1.13; raise the purchase price for barrel cheese to $1.16 per lb from $1.10; and raise the purchase price for nonfat dry milk powder to 84c per lb from 80c.

Mr. Wakefield also discussed measures dairy farmers themselves are taking to address their plight, such as aggressively using the Cooperatives Working Together (C.W.T.) program to remove more than 100,000 cows from the national dairy herd this spring, and then initiating yet another herd retirement effort in early July.

"Dairy producers have spent $115 million of their own hard-earned money this year on our most recent herd retirement program, the largest one in C.W.T.’s history, and are prepared to spend up to $160 million more in subsequent rounds of our program in the near future," he said.

Paul Kruse, who is the chief executive officer and president of Blue Bell Creameries in Brenham, Texas, and a chairman of the International Dairy Foods Association, told the subcommittee that product innovation and increased global demand are fundamental parts of any solution designed to address the economic conditions currently facing the U.S. dairy industry.

"There’s no question that dairy farmers have been hit hard by our economy, and this concerns dairy food companies greatly," Mr. Kruse said. "The partnership between milk producers and milk manufacturers is critical to the overall health of our industry and the policies you create here affect this partnership in good ways and bad."

Mr. Kruse urged the subcommittee to consider policies that will strengthen the dairy industry in the long term by increasing demand for U.S. dairy products. He outlined ways the industry may grow by providing greater access to risk management tools, expanding international markets and encouraging innovation in dairy products and ingredients.

"As an industry, we can capture more of this growth if we avoid the temptation to put more band-aids on an old system and consider long-term approaches that will allow us to innovate and expand as an industry," he said.

Citing a "disaster in the making" on Vermont dairy farms, Senator Bernie Sanders of Vermont has asked the U.S. Justice Department antitrust division to investigate milk processors. The senator met last week with Assistant Attorney General Christine Varney, the antitrust division chief, to request "a very serious look" at Dean Foods Inc., Dallas, which dominates some two-thirds of the New England milk market.

"Farmers have seen the price for their milk drop from $19.50 per cwt a year ago to less than $11 (cwt) in June," Mr. Sanders said. "Meanwhile, Dean Foods’ profits climbed from $30 million in the first quarter of 2008 to $76.2 million for the first quarter of 2009.

"To the best of my knowledge, Dean Foods now controls about 70% of the liquid milk production in New England — 70%. And while family farm incomes are plummeting, Dean Foods has seen a very significant rise in profits."

This article can also be found in the digital edition of Food Business News, July 21, 2009, starting on Page 37. Click here to search that archive.

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