National dairy panel examines industry effects on producers

Farm Forum

KANSAS CITY, Mo. – A dairy panel told an audience of milk producers from around the country in Kansas City, Mo., last week, that increasing milk processing consolidation into private hands and foreign ownership is rapidly changing their industry. And not for the better.

Foreign-owned dairy processors that are not co-ops now command two of the top three positions in dairy sales in the U.S. And, the highest-ranking co-op now registers only fifth in total milk sales to consumers.

This shift matters to dairy producers, because private and foreign-owned processors have less incentive to pass along more money per hundredweight back to farmers for their raw milk. Compare that to dairy farmer-owned cooperative processors, who work on behalf of their member-owners – dairy farmers themselves.

“It wasn’t so long ago that three dairy processors out of the top four were U.S.-owned cooperatives,” said National Farmers Dairy Marketing Director Brad Rach. “Today, however, of the top 16 processors, only four are cooperatives,” he said.

Rach predicted that unless dairy producers take control of their own destiny, cooperatives will continue to lose influence as private and foreign owners take over the processing industry. Meanwhile, Rach said government policies continue to press for programs that help farmers live with low prices, and he expects that will continue.

Addressing producer profitability, in California, the nation’s number one producing dairy state, average milk producer margins have moved from a +$2.28 in 2007, to a loss of an average of $3.83 in 2012.

“Producers have reacted by eliminating higher-priced feeds to lower their input costs,” said Joe Paris, a California-based national dairy consultant who provides market analysis and forecasting to large dairy operations, including 9,000-cow Gallo Dairies. “Some producers are diversifying into almonds, pistachios and walnuts. But, some are exiting the business for a more profitable use for their land,” Paris said.

Producers have also petitioned the state for regulatory price increases to match Federal Orders. In the California state legislature, there has been an effort to raise producer milk prices through legislation instead of through the Federal Orders.

Dr. Richard Levins spoke about smaller-sized family farms and their importance in the production industry. He said 10,000 family-sized dairy farms have been lost in the past five years, and he anticipates relatively higher feed costs will accelerate the losses in the near term.

National Farmers provides group marketing, price negotiation and risk management programs to the nation’s farmers and ranchers.