Farmers' costs higher than reported
There are as many solutions to the problem of dairy farms being forced out of business because of low milk prices as there are farmers. The proposals can — and should — be debated vigorously by both farmers and consumers, without delay.
First though, there has to be some adjustment in the way we are thinking about the "problem" of milk pricing. In the past several years, the price farmers have been paid for their milk is $2 to $6 below the so-called cost of production.
Most of those who have been debating this issue have been using a figure of about $16 or $17 per hundredweight to produce the milk. In the mid-1980s — the time of a milk strike and its immediate aftermath — the cost of production was said to be about $16 per hundredweight.
It's hard to believe that, in 24 years, with even a small rate of inflation in each of those years, that the cost of production in 2010 would still be $16 per hundredweight. Yet, that's the number that has been used by those who claim to be extremely concerned about the demise of dairy farms in New York and elsewhere.
No one can dispute that it is impossible to keep a farm going on $14 or $15 milk, let alone receiving as little as $11 or $12 for 100 pounds of milk, which has been the price for many over the past few years.
The real cost of production seems to be so far from the discussion about the "dairy farmer problem" that no one seemed to catch a whopper of a mistake in an Associated Press story that the cost of production is $15.98 per hundred gallons (There are 11.5 gallons in 100 pounds of milk.)
The AP reporter quoted the cost of production figure as having come from the U.S. Department of Agriculture, but USDA's Economic Research Service lists the cost of production for New York dairy farms in April 2010, the latest figures available, was $24.75 per hundred pounds of milk. Consistently, USDA has in the past two years listed the cost of production in New York at between $24 and $26 per hundredweight.
The agency's numbers come from combining operating costs (such things as feed, veterinary costs, marketing, fuel, repairs and custom services) and overhead costs (such things as hired labor, cost of unpaid labor, cost of land, rent, taxes, and insurance).
Consistently, the USDA numbers show the operating costs to be a little more than half the total cost of production and the remainder is attributed to overhead costs. So, in April 2010, the operating costs were $13.86 and overhead costs were $10.89 to produce 100 pounds of milk, for a total of $24.75, according to USDA.
To get down to a $16 per hundredweight cost of production in 2010, therefore, the numbers have to be juggled and a considerable percentage of either operating costs or overhead costs has to be eliminated — just caused to disappear.
USDA did not create these production cost numbers out of thin air. They have enough farm economists and others studying these issues to have based them on the real world, at least to a great extent.
Why do we get production cost figures that are so out of whack? It could be because no one wants the general public or even the farmers to know how bad things really are.
Perhaps, it is because those who benefit from farmers' seven-day work week do not want to panic farmers about the condition of their lives and livelihoods. It's bad enough planning which bill of 20 to pay this month, without thinking about doing all that work for a price that is little more than half the actual cost of production.
Farmers, being an optimistic lot, think after all, if the production cost is only $16, maybe this coming year the price of milk will get back to that level, or even to $17 or $18 a hundredweight or more.
Those familiar with the issues know that the public — people who drink milk and eat dairy products — need to understand the problem, because farmers, who make up less than 2 percent of Americans, need their help to make it to next year. If everyone is not using the same numbers or the numbers are wrong, the problem cannot be solved and will not be solved, and small dairy farms will be a thing of the past.
The writer is president of the Empire State Family Farm Alliance.
