Just who got milked?

National Farmers Union President Dave Frederickson lays out the gross inequities in the current dairy market that are milking farmers and consumers while processors and supermarket chains are getting fat on dairy profits.

By Dave Frederickson

On the raw edge
of dairy disaster

For a more intimate perspective on what’s happening to dairy farmers in this country, check out Brenda Cochran's column, Dispatches from Dairyland, in which she shares her thoughts, observations and stories gleaned from listening to dairy farmers who call her hotline. Click here for Brenda's latest column

Consumers are paying more for dairy products and dairy farmers’ net income is down 50 percent, yet certain dairy processors are earning record profits. This would lead one to wonder, "Just who is getting milked?"
Dean Foods, the largest fluid milk processor in the country, recently announced record earnings for 2002. The processor attributed the increased earnings to reduced raw milk costs, the synergy of mergers, and the success of its specialty lines.

Meanwhile, at least two ice cream makers are admittedly skimping on the amount of ice cream in a half-gallon container and scooping up profits from the sales of new 1.75-quart containers, for which they are charging the same price as the conventional two-quart containers. Processors and retailers cite rising ingredient costs for their actions. The opposite is true.

The costs for butterfat and nonfat solids, the main dairy ingredients in ice cream, have dropped by one-third since January 2002. Prices paid to farmers for their milk have dropped more than 50 cents a gallon in some parts of the country since that time. Nationally, U.S. dairy farmers will receive $4 billion less in milk receipts this year than last.

"The lack of
market competition that exists in the dairy industry allows the few largest companies to dominate the market not
through efficiency, but through monopoly."
At the same time, the administration is proposing additional changes in dairy programs that would cost dairy farmers as much as $1 billion in lost income. Additionally, the United States is seeking to open borders even further to cheap dairy substitutes from Australia and New Zealand, further flooding the U.S. market.

Consequently, dairy farmers are receiving the lowest prices for their products since 1979 and are continuing to go out of business at a record pace. Unfortunately, economic projections predict that dairy prices paid to farmers have little, if any, chance of recovery in the coming months.

Manufacturers, on the other hand, are paying only 50 cents for the dairy ingredients used in a one-half gallon of ice cream. The retail price of that same ice cream is around $5. And, milk prices paid by consumers have held steady or increased. Recent surveys have shown that certain dairy processors and supermarket chains may be earning more than $1 a gallon in profits.

Dairy farmers are not against processors and retailers having a successful year. However, a competitive market situation would reward dairy producers and consumers as well.
America’s dairy farmers and consumers currently appear not to be gaining any visible benefit in the market place. The lack of market competition that exists in the dairy industry allows the few largest companies to dominate the market not through efficiency, but through monopoly. A competitive market would benefit both consumers and dairy producers.

National Farmers Union is urging Congress to hold hearings to determine whether lack of market competition within the dairy industry is resulting in price gouging that is harming both consumers and producers. In years past, consumers benefited when cereal manufacturers responded to congressional questions by announcing they would lower cereal prices.
Similar action is now needed in the dairy industry to stop the unjust milking of American consumers and those who produce their food.

National Farmers Union represents nearly 300,000 farming families nationwide through legislative representation, educational opportunities and support for farmer-owned cooperatives. You can contact the NFU at (202) 314-3104 or