It's Tough Being a Dairy Farmer Right Now
(Bloomberg View) -- America's dairy farmers have been having a tough couple of years. There's a glut of milk on the market, and prices are low.
Wisconsin's dairypeople seem especially put out. They've persuaded one of their U.S. senators, Democrat Tammy Baldwin, to introduce legislation that "would require non-dairy products made from nuts, seeds, plants, and algae to no longer be mislabeled with dairy terms such as milk, yogurt or cheese." And now a small group that lost its Canadian buyers for a specialized product (ultra-filtered milk used in making cheese and yogurt) have gotten President Donald Trump to launch a trade skirmish on their behalf.
One obvious reason for dairies' struggles is what Baldwin was out to slow down: the rise of almond milk and its ilk. Almond milk sales rose 250 percent from 2011 through 2015, according to Nielsen. Meanwhile, the decline in breakfast-cereal eating has presumably also been a factor depressing consumption of all kinds of milk.
Still, there are other things that can be made from milk besides just milk. And Americans are eating more of some of those products.
Put it all together, and what the U.S. Department of Agriculture appetizingly calls "utilization of all dairy products on a milk-fat milk-equivalent basis" has kept going up.
So why are dairy farmers so cranky, especially in Wisconsin? It seems largely due to the maddening nature of farming: When conditions are just right, allowing you to produce a lot, it means they're probably just right for lots of other people, too. Milk production went up at a healthy pace in 2015 and 2016. Milk prices went down. It's something happening all over the place in agriculture right now. There's a corn glut. There's a wheat glut. And there's a dairy glut. But if you look at the trajectory of milk prices over the years, this looks more like a cyclical downturn than the end of the world.
Still, if you're in Wisconsin or another old-line dairy state, there is a long-term trend that may be getting you down. Production has been shifting to bigger, more productive dairies out West.
Finally, let us not forget the perennial complaint that government subsidies meant to protect dairy farmers from price swings end up encouraging overproduction. Partly because of that complaint, the U.S. has shifted in recent years from dairy price supports to a "Margin Protection Program for Dairy Producers" that compensates farmers when falling milk prices and/or rising feed prices squeeze margins. In fiscal-year 2016, it paid out $124 million net (farmers have to fork over premiums to participate), according to the Congressional Budget Office. That's on estimated overall dairy revenue of $34 billion in 2016 -- down from $49 billion in 2014. From a dairy farmer's perspective, it must feel like a drop in the (milk) bucket.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Justin Fox is a Bloomberg View columnist. He was the editorial director of Harvard Business Review and wrote for Time, Fortune and American Banker. He is the author of “The Myth of the Rational Market.”
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