Farmers dodge dairy cliff
While the nine-month extension of the 2008 Farm Bill that was passed late Tuesday night by Congress as part of its "fiscal cliff" legislation prevented a near doubling of U.S. milk prices, many local dairy farmers note that it was a temporary "band-aid" on a problem that needs a long-term solution.
"The frustrating part is that there was so much work put into this (proposed 2012) Farm Bill, and basically, everything was in place," said Kristine Spadgenske, who along with her husband Mark, operates a 150-cow dairy farm eight miles west of Menahga, on the east edge of Becker County.
"Unfortunately, when we finally came up on the 'fiscal cliff' and Congress needed to start doing some heavy duty decision making, they could not come to an agreement on the Farm Bill -- so basically, it (a final decision) was extended for a year."
In the past, the one thing that legislators on both sides of the political divide had usually managed to come to an agreement upon was the Farm Bill, Spadgenske added -- but not this time.
"Historically, they have always managed to put away their party hats when it comes to the Farm Bill, and come together to get something accomplished -- this is the first time that really has not happened," she said. "For the dairy industry, this has been a pretty frustrating ordeal."
While extending the 2008 Farm Bill legislation did avoid a steep hike in milk prices, and gave both houses of Congress more time to reach an agreement, it also put many of the provisions included in the proposed 2012 Farm Bill legislation back onto the negotiating table, Spadgenske added.
"They had done so much leg work to get to where they were at, and I worry about having to start over -- what effect that's going to have," she said. "This (extending the 2008 Farm Bill) is just a band-aid over the wound. At some point they're going to have to sit down together and come to terms again."
One of the biggest problems with this is that not even the dairy farmers themselves agree on what the best solution may be, Spadgenske said.
"Maybe we would do fine without a Farm Bill -- there are definitely some dairy producers out there who feel that way," she added.
One of them is Philip Rotz, who along with his father, brother and their respective spouses operates a 50-cow family dairy farm two miles west of Dunvilla.
Rotz said that he had not been in favor of many of the provisions in the proposed 2012 Farm Bill legislation.
"We don't believe in government farm payments -- we've never taken a payment," Rotz said. "Personally, I would rather see them do away with the farm payments and put dairy on the global market -- instead of the dairy industry spending money on a farm bill, we should try to promote milk consumption around the world and get more global partnerships -- more worldwide consumers who would consistently contract with us and buy the product. Let's work on expanding that -- instead of spending the money on the farm bill, try to expand the global demand for milk.
"We've done a good job of promoting milk here in the U.S. -- the average person here in the U.S. consumes 600 pounds of dairy products a year," Rotz said.
By comparison, "the average person in China consumes about 100 pounds of dairy products a year," he added. "If we could get them up to even 200 (pounds)...we've got 350 million people, they've got close to a billion. To create almost double the (current) demand -- that's a lot of dairy consumption."
Spadgenske agreed that maintaining and expanding the dairy export market was an important part of the industry not just in Minnesota, but the U.S. as a whole.
"We're exporting 16 percent of everything we produce in the U.S.," she said. "That's a big part of our industry, and we need to keep exports at that level while continuing to grow that (global market)."
Allowing the 2008 Farm Bill to lapse would not have achieved that goal, however -- in fact, it may have had the opposite effect, she cautioned.
If there had been no extension on the 2008 Farm Bill legislation, "the reality of that would have been, yes, we would have had almost $40 a hundred-weight milk, but at the same time, consumer prices in the grocery store would have followed suit."
While some consumers may not have had a problem paying $6, or even $8 for a gallon of milk, many would have balked -- and the U.S. might even have ended up importing milk and other dairy products from other countries, where it would be cheaper to produce them.
"Keeping consumption (of U.S. dairy products) up is crucial to our industry," Spadgenske said. "It ($40 per hundred-weight milk) would have been a huge detriment to the U.S. dairy industry."
"In the short term, it would have been great -- in the long term, it would have killed us," said Brian Willie, who along with his son, Aaron, operates a 100-cow dairy farm 4 miles north of Detroit Lakes.
"Under the $38 to $40 (per hundred-weight) price, we would have been making good money ... but in the long term, it would destroy our milk market," he added. "We're competing globally, not just in the U.S. That would have taken us out of all our exports (markets)."
In fact, many U.S. grocery suppliers might start importing their milk and dairy products from New Zealand and other countries, where they could be produced more cheaply, he added.
At the same time, maintaining the status quo indefinitely is not going to work either.
"The present Farm Bill is not an acceptable (long-term) policy," Willie said. "It's not helping us any. There has to be some kind of support program -- we're running out of dairy farmers in a hurry."
Though he's not quite sure what form that support should take, one thing he does know is, "it can't keep going the way it is. The price of milk has to go up, one way or another."
Currently, the base price for milk is $18.50 per hundred-weight, Willie said - but the cost of production (grain, fuel, etc.) is $24 per hundred-weight.
"Grain prices are at record high levels," Willie said. "Hay is in short supply because everyone plowed up their hay to plant corn and beans. That's just natural -- that's where the money is.
"But that's where our biggest problem is, because you can't afford to feed the cows. It has to turn one way or the other. Milk (price) is going to have to go up, because we can't keep producing it for that cheap of a price at the current expenses. We can't keep losing money. You have to be able to make a profit somewhere along the line. There needs to be something done."
One possible "fix" that was included in the 2012 Farm Bill legislation was something known as the Dairy Security Act.
"It would have provided margin protection insurance for farmers," Spadgenske said. "There's a lot of disagreement over whether that was the right program or not."
Part of that legislation would have included a "supply management" provision, where farmers who were covered by this insurance would have to agree to cut production by a certain percentage during times that there was an overabundance of milk and dairy products flooding the market.
The problem that Rotz sees with this legislation is that it favors larger dairy operations.
"If you're giving these larger producers a guarantee of at least $4 (per hundred-weight) profit above feed costs, I think they're going to be expanding quite a bit, and eventually, they're going to drive out the little guys," Rotz said. "I don't think you're going to see any little guys starting up, and eventually, they're all going to disappear."
"There needs to be some kind of better pricing system, or some kind of better way to take away those peaks and valleys (in profits) for producers," Spadgenske said. "There were a lot of people who didn't agree with the Dairy Security Act, but the general consensus is that there needs to be something done. I'm not sure what the answer is, but we're losing farms every single day -- Minnesota is losing farms every single day. We've now slipped below 4,000 dairy farms (statewide). "Milk production continues to go up, but the number of farms is going down ... that's a huge concern."
Follow Detroit Lakes Newspapers reporter Vicki Gerdes on Twitter at @VickiLGerdes.