USDA And Farmers Agree: Dairy Safety Net Isn’t Working

Oct 16, 2017

Galen Fick milks 50 Brown Swiss cows every day on his farm in Boyden, Iowa, where his family has been in the dairy business for generations. Life as a dairy farmer has gotten harder and harder, he says, especially in the past two years.

“Our inputs have gone up so much, not the feed part of it but everything else,” he says, pointing to veterinary care and, especially, labor. “For us to make that profit, [it] makes it very tough.”

Dairy farmers like Fick want some reassurance that the market for milk will pay them enough to stay in business. Meanwhile, when you head to the supermarket, you want the milk on the shelves to be abundant and affordable.

For decades, the federal government has stepped into that equation to keep things stable in the dairy industry. But Fick and other dairy farmers say the government’s current safety net program does not work.

Fick is enrolled in the Margin Protection Program, a form of government-subsidized insurance that came online with the 2014 farm bill, the massive law that governs everything from food stamp benefits to farm supports, including the dairy program. Farmers pay a flat fee to join the Margin Protection Program and they get a payout if their margin gets too tight — that’s the difference between the cost of feeding cows and the price farmers get for milk. They can pay extra for more coverage.

“The first time I went a little bit higher level and now I’m at the lower level,” Fick says, “and it doesn’t work. It’s just been a failure all the way through.” 

Galen Fick and his wife Sandy, stand next to some of their Brown Swiss cows at the Iowa State Fair, have a 50-cow herd in Boyden, Iowa.
Credit Amy Mayer / Harvest Public Media

Even the U.S. Department of Agriculture, which administers the program, says it is not working as intended and will lett producers opt out early if they want. But Fick does believe some kind federal help is necessary. Twenty years ago, the U.S. had almost three times as many dairy farms as the 41,000 it has today.

“Unfortunately, there’s not that many people left to quit, so it’s really a serious issue nowadays,” he says. “There’s so much milk surplus in the United States that we don’t know where to go with this milk anymore.”

Why do we have too much milk with fewer dairies? Modern technology makes farms more efficient, but to make money, they must achieve economies of scale. And that often means growing much bigger; some have thousands of cows. In March, the country had 9.4 million dairy cows, the highest number in 20 years. More cows mean more milk.

Global markets buy up some of our dairy products, but then farmers anticipate a strong export opportunity, gear up to sell internationally, and watch as trade winds blow a different direction. China and Russia had been big milk importers, but their demand has slowed.

U.S. farmers are left producing excess milk, and while much of it is processed into cheese, yogurt, ice cream and milk powders, which have a longer shelf life than fresh milk, the oversupply drags the price farmers get down even more.

“You can't have a program that's too generous because it will generate too much milk production and ultimately be self-defeating,” National Milk Producers Federation vice president Chris Galen says, but adds farmers need to see tangible benefits.

As Congress tackles the next farm bill, Galen says, it’s the time to make changes. Some senators have suggested the traditionally bipartisan bill could get through yet this year, well ahead of the fall 2018 expiration date on the current one.

But Galen’s group, other dairy industry advocates and some farm-sector powerhouses such as the American Farm Bureau Federation will be pushing for reforming rather than replacing the program. For example, Galen says the formula the government uses to calculate margin is flawed.

“The overall margin that's being measured every month at the national level doesn't really reflect what the true economics are on dairy farms,” he says.

Galen says better math would calculate prices and costs more accurately. He says the government’s average prices for corn, soybean meal and alfalfa (all primary feed ingredients) underestimate what farmers are actually paying. In addition, he says the premiums farmers pay for coverage above the baseline need to be calculated every month rather than every two months.

In the past, the USDA attempted to shore up falling prices by purchasing dairy products in times of surplus. But Galen says that program became very expensive and did not provide an adequate safety net.

Still, even an improved program likely won’t please everyone. Matt Schelling, another northwest Iowa dairy farmer who has 150 cows near Orange City, says generally dairy programs have helped small operations like his.

“On the one hand, that’s nice for us,” he says. “On the other hand, is that really fair to the industry and to the taxpayer that’s subsidizing that?”

Maybe it is time to see whether the industry can stand on its own, he says.

Dairies might be okay without subsidies, though that’s very much an open question. But there is no doubt about something else: They need workers. Many dairies depend on immigrant labor to do the daily, year-round, physical work.

“It’s been at a crisis level for the last couple of years and it’s getting quickly more critical as workers leave the country and whatnot,” Schelling says.

As Congress drafts the next farm bill, farmers will be watching to see whether anything from Washington, D.C., makes a difference in the dairy barn.

Listen to Amy discuss the dairy safety net last week on KCUR's Up to Date.