TOPICS > Economy

Global Recession Impacts Dairy Prices, Farmers

July 13, 2009 at 6:35 PM EDT
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Amid the economic slowdown, the dairy industry is being hit with high costs and lower profits, forcing many farmers to make tough decisions. NewsHour special correspondent Jeffrey Kaye looks at how some California farmers are responding to depressed global demand.

JIM LEHRER: Next, the latest in our series of snapshots on the recession and its impact on different industries. Tonight, special correspondent Jeffrey Kaye reports from California on the dairy business.

JEFFREY KAYE: When the economy went sour, the milk industry took a big hit. After years of cows and dairy farms becoming larger and more productive, milk prices went down, demand dropped, and farmers found themselves in trouble.

Geoffrey Vanden Heuvel, who runs two dairies in Southern California, estimates he is losing over $70 per cow per month because, despite the dried-up market, he still needs to feed them.

GEOFFREY VANDEN HEUVEL, dairy farmer: If you do the math, I milk 1,400 cows. And so the $70 — we’re looking at a little over $100,000 a month on my operation that we’re actually expending more in expenses than we’re taking in income.

JEFFREY KAYE: Ken Cook of the Environmental Working Group, a nonprofit that monitors agribusiness, compares dairy to other struggling industries.

KEN COOK, environmental working group: You have a series of bad policy signals here, too, just as we’ve seen in banking, just as we’ve seen in the housing industry, too. Basically, they’re upside down, like many mortgage-owners are now, too, with their homes, except they’re upside down with multimillion-dollar dairy operations that they can’t pencil out a profit as far as the eye can see.

JEFFREY KAYE: The situation is particularly alarming for smaller dairies.

JOHN ANKLER, cattle trucker: Every time you see a milk truck go down the road, that dairyman just lost $3,000.

Operation costs exceed income

JEFFREY KAYE: John Ankler, who runs a cattle transport business in Chino, California, has watched local dairy operators struggle with costs that exceed income.

JOHN ANKLER: This guy here, too. He's the same age as me. They've been milking cows for, him and his father, for 55 years. Couldn't make it. One day, he calls me up crying. "Hey, come get my cows." In a matter of two days, we've finished them out.

JEFFREY KAYE: In fact, hard times on the dairy farms have meant more work for Ankler, taking cows to the auction block. Here, dairy cows are sold for slaughter. Since their milk can't be stored for long, farmers are culling herds and selling cows off as beef.

Rod Bolcao, who owns the Chino Livestock Market, says his business has benefited, but it's been heartbreaking.

ROD BOLCAO, owner, Chino Livestock Market: There's been a couple of suicides that I understand have happened, and, well, I know that's happened. And then there's people filing bankruptcies, and there's people going out of business because they just don't know which way to turn.

JEFFREY KAYE: To lower milk supplies and drive up prices, a national association of dairy cooperatives has a two-year program to buy cows for slaughter. So far, it has purchased 101,000 cows.

To save money on feed, Michael Oosten, whose family has been in the dairy business for 64 years, has sold off 5 percent more cows than he normally would.

MICHAEL OOSTEN, dairy farmer: Yes, you can butcher the cows or go out of business, and that's about your only choices, and neither one of them is one that you want to do. And right now, everyone's stuck in this catch-22 situation. If you beef too many cows, you don't have enough milk in the tank.

New cows over-produce milk

JEFFREY KAYE: Having too much milk in the national tank is one reason the industry, which has consolidated into fewer but larger farms, finds itself in the doldrums.

The dairy business has turned cows into highly engineered, super-efficient milk production units. Changes in breeding techniques, feed mixtures, the use by some of growth hormones, and improved dairy technology have created designer cattle.

The average American cow yields 6.5 gallons of milk each day, twice as much as her 1970 counterpart. In 2007, the milk bubble started growing, spurred by high prices and rising demand. Exports of dairy products increased, particularly to China and India.

In response, dairy farmers increased their herd sizes, but last year, as the world economy plunged, feed prices went up. Exports dropped by a third, and milk prices declined. The bubble burst.

In this California supermarket, the price of milk, about $2.20 a gallon, was selling for about a third less than it was two years ago.

GEOFFREY VANDEN HEUVEL: You know, our fundamental problem is that our ability to produce exceeds the market's ability to absorb it, and we don't have a national system that really communicates in any meaningful way an appropriate supply of milk.

JEFFREY KAYE: So what's the solution?

Adoption of a national strategy

GEOFFREY VANDEN HEUVEL: Well, I think it's time that we adopt more of a national strategy of balancing our supply and demand.

JEFFREY KAYE: Since the 1930s, the U.S. dairy industry has been highly regulated. The government sets price minimums, provides subsidies and export aid, but dairy owners say the government assistance has not been sufficient to avoid problems.

Vanden Heuvel wants the government to control the milk supply by regulating dairy production.

GEOFFREY VANDEN HEUVEL: The program that we're promoting is a program that would simply say -- establish a certain amount of allowable growth, facility by facility, dairy farm by dairy farm. And if you exceeded that growth rate, you would pay a market access fee.

JEFFREY KAYE: The fees for exceeding limits would go to dairies that didn't grow. The organization Farm Aid wants the government to set milk prices that reflect production costs. But Ken Cook believes that won't solve the problem.

KEN COOK: We'll see a lot more farmers protected for the time being, but over time what that will do is that will just send a signal to produce even more milk. And so we'll find somewhere down the road we're in the same crisis situation we're in now.

JEFFREY KAYE: The Obama administration has agreed to provide export subsidies and to buy up dairy products in order both to help farmers and to assist low-income families who need the food, but the long-term problem is what to do about a perishable product with a limited shelf life produced by America's more than 60,000 dairies.