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Some things I think

Progressive Dairyman Editor Dave Natzke Published on 11 June 2019

One of the lingering side effects of growing up on a dairy farm is that I continue to wake up before 5 a.m. – despite being removed from the morning milking schedule for several decades.

Then, during a spring like the one we’ve just experienced, I watch the rain drown out the sunrise while sitting at the computer thinking great thoughts. Here’s some things I think.

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1. Managing milk supplies in a litigious society is confounding. I submit into evidence two lawsuits against the Cooperatives Working Together (CWT) herd retirement program (conducted between 2003-10) nearly a decade after the program ended.

The class action lawsuits – one in Florida and one in Illinois – allege dairy cooperatives and their producer members conspired to raise milk and dairy product prices by sending dairy cows to slaughter to reduce milk supplies. The National Milk Producers Federation (NMPF) is fighting the lawsuits, but the organization previously settled one lawsuit out of court in 2016 for $52 million instead of watching legal costs spiral.

During CWT creation, NMPF leaders said they believed the program fell under provisions of the Capper-Volstead Act. CWT’s activities were vetted with the USDA, and no Capper-Volstead concerns were raised. The U.S. Department of Justice also raised no concerns.

Some of the arguments expressed by plaintiffs in the ongoing lawsuits would be hilarious if they weren’t so painful. Among them, “the herd retirement program will result in artificially high milk prices far into the future.” Due to multiple factors far beyond CWT, milk prices paid to farmers rose to record highs in 2014. Since that time, however, dairy farmers have seen prices at or below the cost of production, and thousands have exited the business. The defense rests.

2a. If you have to produce for a commodity market, you have to compete in a commodity market.

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2b. All successful niche markets eventually become commodity markets.

Attrition and consolidation numbers are pretty clear in dairy and just about every industry. Short of intervention from government or nature, producers and suppliers of raw commodities who survive or thrive generally optimize economies of scale. The numbers tell us those who can’t compete on a cost-per-unit basis must find a way to get out of the commodity market as quickly as possible and find a niche – whatever it is – where they can capture more value.

However, they can’t stop there. Think of all the “niche” things (remember rbST-free?) that used to pay a premium but are now part of the new normal? Even organic producers now suffer from some of the same market forces faced by their conventional counterparts.

The secret, I think, is to identify and take advantage of your niche market early but always be ready to evolve into another niche market over time.

3. For one of a limited number of industries that actually provides a trade surplus for the U.S., agriculture (and dairy) sure ends up under the bus a lot.

Some of our largest trading partners are those who produce things Americans want at a cost less than we can produce those things ourselves (see 2a above). They’re also some of the biggest buyers of U.S. agricultural and dairy products. So when trade disputes arise, agriculture and dairy are targets for retaliation.

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In the grand scheme of things, dairy is a small part of the total U.S. trade picture, dairy farm numbers are small and shrinking, and dairy ranked 78th among all industries in terms of U.S. political contributions in 2018.

I think that making sure there’s a strong dairy industry, involving family farms of all sizes, would protect consumers, the nation’s food security and a business segment helping improve the trade balance.  end mark

Dave Natzke
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