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Iowa Ag Sec Candidate Speaks Out About Dairy

by: Jill Richardson

Thu Jun 04, 2009 at 21:38:08 PM PDT


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I'd like to introduce you to Francis Thicke. No, that's not him in the picture. That's his farm. He's an Iowa organic dairy farmer, a Kellogg Food and Society Policy Fellow, and hopefully he will be the next Secretary of Agriculture in Iowa. He holds a Ph.D. in Agronomy/Soil Fertility and a Masters in Soil Science.

I plan to follow Thicke's campaign, and I also hope he'll share a bit more about his farm with us. But right now, the topic at hand is the dairy crisis. I've said it many times that my dairy friends tell me they are in the worst crisis since the Great Depression. Dairy farmers have staged many protests and the USDA has been unresponsive - at least, they haven't done anything that will make a true difference for struggling dairy farmers. The USDA has done two things so far - purchasing more milk for domestic nutrition programs, and sending more milk overseas. But the problem isn't one of supply and demand. Due to unfair price manipulation, the "invisible hand" is all but absent. Thicke's statement from a recent protest is below.

Jill Richardson :: Iowa Ag Sec Candidate Speaks Out About Dairy
Statement by Francis Thicke
Manchester Dairy Rally
May 30, 2009

Milk prices paid to dairy farmers have fallen by nearly half this past year, but the price of milk on the grocery store shelf has changed little, if at all.  For years dairy farmers have been repeatedly and increasingly squeezed by cycles of this same marketplace phenomenon.  Economists call this "asymmetric pricing."  

Asymmetric pricing in the dairy sector occurs through the following mechanism: when prices rise for dairy farmers, prices rise in grocery stores; when prices fall for dairy farmers, prices remain the same or fall proportionally less in grocery stores.  As a result of this cycle occurring repeatedly, dairy farmers are receiving an increasingly smaller portion of the dollars consumers spend on dairy products.

Why has the supply-demand relationship of the marketplace broken down in the dairy sector?  Why is the free market no longer functioning properly?

During recent years, the dairy marketplace has become increasingly concentrated, to the point that monopoly power now appears to play a role in setting dairy prices.  Economic literature indicates that if four (or fewer) firms control 40% of a market, that market no longer functions as a competitive market.  Today, just one firm purchases 34% of the milk produced by U.S. dairy farmers.  That firm, Dairy Farmers of America (DFA), also has marketing agreements with other dairy purchasers, leading industry analysts to estimate that DFA by itself indirectly controls over 40% of the commodity milk market.

Dairy processing and wholesaling has become similarly concentrated.  Dean Foods has acquired more than 100 dairy manufacturing plants over the past 15 years as it led the consolidation of dairy processing and wholesaling.  Dean's products are sold under more than 50 regional brands and a wide array of private labels of grocery chains.   It is not publicly known exactly what share of the processing and wholesale market Dean controls, but some industry analysts put it at 40%. Ironically, as dairy farmers are being paid well below their cost of production, Dean Foods reported record profits last quarter.

These two industry giants, Dean Foods and DFA, work together and have marketing agreements for purchase of raw milk from farmers (DFA) and processing and wholesaling of dairy products (Dean) all across the U.S.  To add to this growing monopoly power within dairy marketing, the retail food industry has undergone major consolidation in recent years, resulting in a few large grocery chains controlling the majority of retail sales of U.S. dairy products.

What can be done?  For one, the federal government needs to enforce antitrust laws.  We need Teddy Roosevelt-style action to bring back competitive markets.

Also, it is time for dairy farmers to step up and take back control of their cooperatives, so cooperatives again work for the benefit of farmers.  For example, why does DFA have 12 licenses to import dairy products into the U.S., including a license to import butter substitute?  How is that helping DFA's farmer members?

Recent massive imports of dairy products are contributing to the havoc within dairy markets.  According to recent data, the equivalent of 20,000 semi tanker trucks full of skim milk were imported into the U.S. during one month's time in the form of milk casein and milk protein concentrates (MPC).  It has been reported that much of the imported MPDC has not been subject to FDA safety testing.  After the contamination we saw in Chinese dairy products, this is more than an academic concern.

These massive imports drive down prices paid to U.S. dairy farmers.  Why are U.S. dairy cooperatives importing milk products to the detriment of U.S. dairy farmers?

Dairy farmers are in crisis and cannot long stay in business under today's market conditions.  Small and mid-sized dairy farms, with limited capital, are particularly vulnerable.  These farm businesses buy locally and contribute greatly to the economies of rural America.  America needs to keep its family dairy farms.

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Yet another reason (4.00 / 5)
why I don't believe in a completely free market. It doesn't exist, not over the long haul.

For all that my favorite conservative talkshow hosts espouse the wonders and advantages of the 'free market', it always eventually ends up being controled by monopolies. That's just human nature.

I think it has a lot to do with the type of personality that enables a person to go into business for themselves. You got to have some ambition in you, and if you have too much ambition, and you grow too big, you eventually wind up being a business tyrant.

It's shameful for a business, it's doubley shameful for a cooperative to behave in such a way. Shame on DFA for harming the very people it was created to help.

Francis Thicke is right when he says that the dairy farmers need to take back control of their cooperative. Shame on them for ever letting it go.

Normal people scare me. But not as much as I scare them.....


Free Markets Fail (4.00 / 4)
Adam Smith is commonly held up as their patron saint by the conservative advocates of "free markets". But he said a number of nasty things about business people. One that I can recall off the top of my head is the following (near-)quote: "Businessmen rarely get together on the golf course but what their conversation turns to a conspiracy against the public." He knew businessmen and was extremely skeptical of their virtue. Almost no one who quotes and praises Adam Smith, and wears Adam Smith neckties, has ever read his books and really knows what he said.  

Remember, Smith was first and foremost a moral philosopher.  His first book was titled The Theory of Moral Sentiments.  He advocated for free markets as a means of controlling both government intrusion (which was ruinously extensive in his time) and the tendency toward private monopoly.

His invisible hand comment was correct and insightful. But it has been over-quoted and simplistically understood by BOTH his so-called disciples and his critics.  A former student of mine once referred to it as the "magical hand of Adam Smith". But in the 2+ centuries since he made it, we have learned that in a great many cases it fails to work, for example, with respect to environmental externalities.

For dairy farmers, a key factor is their high fixed costs. When dairy prices go down, they cannot cut back on production as simple Economics 101 theory prescribes. The only rational response is to increase production even further, because any surplus of price over their variable costs will give them some net revenue to apply against (reduce) the burden of their fixed costs. And this increased short-run supply will force price down even further.

I also agree with Joanne's comments about the kind of ambitious personality that leads to monopoly.  


Pork industry has problems also (4.00 / 3)
Pork Industry Baffled by Bans

Continued bans on U.S. pork imports by China, Russia and more than a dozen other counties have baffled government and industry officials, leading some to speculate that the issue is more about market share than health concerns.

The bans, instituted in the wake of the swine flu outbreak, cost the U.S. hog industry millions of dollars every week. And they continue despite insistence by international health officials that the pork is safe and the country's hogs are not to blame for the epidemic.

http://www.google.com/hostedne...

Pork demand is down, costs are up, pork will not cause swine flu, yet the USDA insists on making statements implying that there is a link. And the solution is even more cost to the producer.

http://www.feedstuffs.com/ME2/...

Special coverage from the World Pork Expo (WPX) June 3-5 in Des, Moines, Iowa

Flu shows need for 'world-class surveillance system'
U.S. Department of Agriculture Animal & Plant Health Inspection Service administrator Dr. Cindy Smith told a WPX luncheon today that the situation surrounding the H1N1 flu has impressed on the Obama Administration that the U.S. needs "a very strong, world-class surveillance system" and animal identification to respond to animal diseases and public health emergencies.



Dairy Farmers (4.00 / 4)
Dairy farmers can also contact US DOJ Antitrust Division.

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