Subsidy Program Not Working

Milk producers in Vermont and other dairying states are bailing out at a steady rate. DAIRY BUSINESS GOES SOUR

IN a neatly kept barn in Highgate, a small town in the northwest corner of Vermont just a few miles from the Canadian border, country music blares from a small tape player as dairy farmer Jacques Rainville and two of his young sons coax 60 lumbering cows in from the pasture.Mr. Rainville bought his 300-acre farm six years ago. His father, who has been farming for 40 years, lives next door. Hundreds of other dairy farms dot the landscape of this county - which produces more milk than any other county in Vermont - like a patchwork quilt of barns, silos, and cattle. But many dairy farmers here and elsewhere in the United States have been pushed to the limit by the past year's near record-low milk prices. A large number, including the Rainvilles, can't pay their bills and depend on federal food stamps. "We're broke," Rainville says. But he adds: "We're dedicated to farming. I don't want to give up." US dairies sell their milk by the hundredweight: 11.6 gallons equals 100 pounds. Last spring, prices per hundredweight fell to the lowest inflation-adjusted levels since the US Department of Agriculture began keeping records after World War II. Nationwide, farmers received an average of $16 per hundredweight in December 1989; but by April 1991 prices had plummeted to about $11.30. Although prices have edged up to $12.60, farmers say they are still struggling because production costs average $14. Thus, many dairy farmers have been receiving 25 to 30 percent less for their milk than it costs to produce it. "This has been the worst time," laments Francis Howrigan, who has been farming for more than 40 years in Vermont. While farmers have seen their paychecks decrease by 25 percent, consumer prices for milk and milk products have decreased minimally. Farmers charge that dairy processors such as Kraft General Foods and Land O' Lakes, Inc. are making high profits at their expense. An increase in dry milk exports and the 1988 drought helped trigger the current milk crisis. When the cost of feed skyrocketed, farmers produced less milk and supplies shrank. As a result, demand for milk increased. Farmers then started producing more, which created a surplus and drove prices down. Still, some farm groups argue the surplus is estimated at only 2 or 3 percent, and that market manipulation is creating low prices. Milk surpluses are a constant problem in the dairy industry, and boom and bust cycles are common. While farmers differ slightly on the best solution, many agree that the complex federal price support system, set up during the 1930s, needs to be revamped. (The federal milk support price - now at $10.10 per hundredweight - is the minimum price the government will pay to farmers.) The 1990 farm bill left the door open for changes in federal dairy policy, and Congress is deliberating on how to aid the country's dairy farmers. The plan on the table is for a diversion program which would pay farmers if they reduce production. In 1984, a 15-month diversion program effectively limited production. But once it ended, supplies rebounded almost overnight. Many farmers and farm advocacy groups are pushing for a two-tier supply management system, which would pay farmers a higher price for a base production and a lower price for surplus production. Such a system would offer a long-term solution to the pendulum-like price swings of the dairy industry, says Kathy Ozer of the National Family Farm Coalition. Advocates point to Canada, which they say has a successful program. But others, including the Bush administration, oppose a quota-based system. Several agricultural economists believe the federal support price program has worked well and that the market should continue to regulate the industry. Thus, if prices are too low, some farmers may be forced out. "I have to say there could be a lot of human misery associated with letting that happen, [but] one way or another society needs to be able to cope with that," says Lynn Daft, an agricultural economist and vice president of Abel, Daft & Earley outside Washington, D.C. Some analysts say other factors will determine who stays in the industry. A number of the nation's 140,000 dairy farms, particularly in the West and Southwest, which have larger herds, better access to feed supplies, and more high-tech operations, are able to produce milk more cheaply. Even small farms that have adopted different management strategies or have made certain adjustments to their farming operations will be better able to survive. Despite the crisis, the rate at which dairy farmers are leaving the industry has not increased, partly because it is more expensive to sell the farm than to stay in farming. Still, the industry's downsizing will probably continue, says Gary Bigger, a farm business consultant in western New York: "For the most part, we're looking at a quarter or one-fifth of producers who are going to go out of business every five years. At some point that's got to stop. I guess I don't see it stopping yet." In Vermont, where 2,300 dairy farms account for 85 percent of the state's agriculture, many people are growing more concerned at what a possible loss of farms will mean. Farms not only ensure that open space is preserved, but they also anchor rural economies, says Tim Atwater, co-director of Rural Vermont, a farm advocacy group: "When we lose a certain number of farms, the infrastructure crumbles."