Guest Opinion: Two tiered dairy pricing structure levels the playing field
A two tiered pricing structure would allow family dairy farms to earn a living wage and encouraging future generations to return to the farm to support their rural communities
For more than 150 years, family farms have driven rural communities. It’s still that way today; family farms support local schools, churches and businesses. In short, family farms support what rural America is all about.
Meanwhile, today’s consumers say they want more locally-raised food; they want to know the story behind who grows that food. But as mega-sized farm numbers across all commodity sectors continue to increase, family farms are being forced out of business. And the family dairy farm is no exception.
Since 2002, the number of licensed dairy herds in the country fell by more than one-half. Meanwhile, investor-owned mega-dairies have been increasing in numbers in regions across the country. According to a 2017 USDA report, dairy operations with 5,000 cows or more are raised on 187 dairies nationally. That may not sound like many dairies, until you realize the very largest dairy farms produce one-third of all the milk consumed in America.
The largest dairy farm in the USA is Threemile Canyon Farms in Oregon, milking 70,000 cows. These mega-dairies enjoy huge operating cost advantages over family-sized farms. They run 24-hours a day and some of those corporations milk cows three times daily. These huge dairies don’t buy locally; they tend to truck in semi-loads of supplies and feed. That means they cut out local businesses. According to USDA in 2019, dairies with 2,000-head or more had an operating cost advantage of $5.50 per hundredweight compared to a 50-head dairy farm. Now, we even have two of the largest retail grocers bottling their own milk, Walmart and Kroger.
But all of those statistics add up to the simple fact that dairy producers need a pricing structure overhaul plan that enables family-sized dairy farms to remain in business without additional costs for taxpayers or consumers. To level the playing field between huge dairy conglomerates and smaller operations, one idea that is gaining support from many farm groups — especially those with family farms as members — is a two-tiered pricing system. Under that system, all farms, regardless of the herd size, would receive the same price level for the first 1 million pounds of milk they produce each month.
The average dairy cow produces about 65 pounds per day. Using a 30-day month, a dairy herd of 500 cows would still receive the higher price for all their milk. Any production above this level would be paid at a lower price. Because mega-dairies have lower production costs, any milk they produce above 1 million pounds would still be profitable to them. Dairies could produce as much milk as they want; there would be no quotas.
For the two-tier structure pricing approach to work, however, the entire country would need to be on the same federal order system. Right now, there are 11 federal orders. Historically different regions of the country have paid dairymen at different rates. This system, known as Federal Milk Marketing Orders, pays producers more in higher milk utilization areas, around larger cities. With the development of larger dairies and better roads and trucks, milk is now shipped from one region to another on a regular basis. This is making the regional pricing system less relevant today.
If the whole country had one pricing system, though, the two-tiered approach could easily be administered by the same government agency that regulates it now. This would allow family dairy farms to earn a living wage, encouraging future generations to return to the farm to support their rural communities.
If we fail to support independent family farms, ultimately our only source of milk will come from mega dairy farms. Think back a few months at huge meat processing plants when COVID-19 struck their workforce. Do we want the same possible scenario to impact our dairy supply when the next pandemic strikes? It need not even be a pandemic. In February 2019 a 4,000-cow dairy farm in Clovis, New Mexico had their water contaminated by the U.S. Air Force. This led to the entire cow herd being euthanized.
Multiple other catastrophes can be imagined. This is not only about local rural communities, it’s about national food safety and security. Family-sized dairies need a new pricing structure system to remain competitive. Only then can they compete with dairies milking tens of thousands of cows.
Bruce Shultz is vice president of the National Farmers Organization. He and his wife Wendy operate a cow/calf ranch in Raynesford, Montana.