It is well known that Vermont’s dairy farms are struggling. So an article titled “Even Dairy Farming Has a 1 Percent” caught my eye. Planet Money’s Adam Davidson’s short piece in the New York Times outlines familiar but nonetheless disturbing trends.

Davidson visited a dairy farm in New Jersey where a father-son team is barely staying ahead of the curve. The hard-working pair running this top-producing farm are on the job daily from 4:30 am to 7 pm and trade off Sundays – yet each earns less than minimum wage. All pretty familiar stuff to some Vermonters. Our state has seen some positive trends in value-added cheese processing and continues to focus on local fixes including expanding branding, aggressive marketing, and increasing Dairy Management Teams to reduce production costs.Major structural problems persist and dairy closures continue.

A modern dairy farm can produce large quantities of milk, but the task of balancing demand with supply is what haunts the industry. With accelerated consolidation and commoditization of the industry, a few big players are benefiting by trading dairy and feed products like fast-paced derivative traders.  Planet Money:

… dairy farming has its own 1 percent: that tiny sliver of massive farms, with thousands of cows, that make the biggest profits and are better equipped to pay agriculture-futures experts to help them manage risk.They continue to invest and grow.  

The markets offer a stunning range of complex agricultural financial products. Dairy farmers (or, for that matter, anybody) can buy and sell milk and animal-feed futures, which allow them to lock in favorable prices, hedge against bad news in the future and so forth. There’s also a new product that combines feed and milk futures into one financial package, allowing farmers to guarantee a minimum margin no matter what happens to commodity markets down the road.

This leaves many small operations on the margins and speeds consolidation. The U.S. Department of Agriculture reports that for the first time ever three percent of the dairies in the US now produce slightly more than half of the milk supply. Just over 50 percent of the milk supply came from farms with 1,000 cows or more. This shift happened quickly, since 2006 when 38.1 percent was produced by farms of this size. The biggest profits are clustered at the top one percent who control a large part of the industry.

And over the fence … ‘Problems loom’

“Problems loom for US dairy farms as output rises” says Agrimoney.com, an online industry publication. Dairy output is rising beyond sales capacity, as experts are pleading for industry self-control.

Producers needed to question whether extra output of some 600m pounds a month "can be readily sold at prices anywhere close to what is needed to generate milk prices high enough to cover costs of production" said Milk Producers’ Council John Kaczor.

Yet the Canadian dairy industry – using a completely different (and very un-American) model – seems relatively stable by comparison. In Canada a system of production quotas dating back more than 40 years protects farmers from conglomerates. The Canadian Dairy Commission and provincial marketing boards regulate prices paid to farmers and control the amount each can produce. It is a complicated system in which a farmer must purchase production quotas that determine the amount of milk that can be produced for sale. Typical Canadian dairy farms have about 70 cows (the average VT dairy farm has 130 cows); quotas (essentially one cow) can cost upwards of $20,000(Canadian). While this cost makes entering the daily business in Canada difficult and expensive, existing farms reportedly enjoy a stable business environment. A University of Illinois study of Canadian farmers’ perceptions of government dairy regulation found that farmers trusted the government system to protect their interests despite systemic inefficiencies.  

"Farmers may change their management practices because quotas are now the single largest capital investment, which restricts herd size,"said University of Illinois agricultural economist Lia Nogueira. "They don't have an incentive to export their milk because the price that they would get in the world market is much lower than the domestic market. It shows that government intervention and controlling an industry can change the way farmers do things. Once you establish a system and people are so invested in that system, it's going to be very hard to make any substantial changes even if it's clear that the program is inefficient."

What is true in Canada is also true in the US: once you establish a system and people are invested in it, it’s going to be very hard to change. Canadian farmers perceive the system benefits and protects them, but who benefits here in the US, and specifically, here in Vermont?  Our farms are vanishing, while some of our farmers barely earn minimum wage. Three percent of dairies produce half the milk. So we know the dairy one percent – massive farms and futures traders – making the biggest profits will resist change to a system that now benefits them and devastates small farms.

Finally, as near as I can determine a gallon of milk in Canada costs $2.41(US) and $3.30(US) in the States. Who benefits more?