How Has the Economic Crisis Changed the Dairy Industry?

There’s never been a year like 2009 for dairy farmers, and with hard work and compromise on the part of the dairy industry, there will hopefully never be one like it again.

2009 will go down as the worst year for dairy farmers since the Great Depression. Dairy farmers have been going out of business, and many of them are barely hanging on as this crisis continues. Calls to our DFA Cares Hotline have continued as members look for resources to help them stay in business another month.

Despite this bad news, there is opportunity for positive change to come as a result of the experience. This crisis has forced many in the industry to re-examine how we do business. Change – although sometimes very difficult to administer – can be a good thing.
For instance, members are figuring out ways to produce milk at a lower cost and are creating new efficiencies at the farm. Admittedly, there is a limit on what you can do. We know you can’t save yourself to prosperity.

Dairy Farmers of America, Inc. staff also have found ways to be more efficient. For instance, by developing a new, centralized procurement strategy, DFA’s supply chain (think logistics and purchasing) has saved $28.6 million in three years. One way they did that was by purchasing the plastic milk sample vials needed by labs as a single entity rather than as seven individual labs; that saved $900,000 annually. Again, while this is a significant amount of money, your Cooperative can’t save you to prosperity.

So, that points us to the revenue side of your profitability equation. DFA’s Board and staff have been diligently working to help members by aggressively looking into both short- and long-term solutions to the crisis. One of the Board’s most recent activities was to approve the Dairy Growth Management Initiative, which President and Chief Executive Officer Rick Smith discusses in his column on page 9. This program, or something like it, we believe is our best hope to help manage volatility in the future.

We also are working with National Milk Producers Federation (NMPF) and other cooperatives to develop different approaches to marketing milk in the long term. We are studying the strengths and weaknesses of federal programs such as Federal Milk Marketing Orders, the dairy price support program and the Milk Income Loss Contract program. We also are investigating some form of milk-feed margin insurance that can help dairy farmers avoid catastrophic losses like what has been experienced in 2009.

We must use what we’ve learned from this crisis as an opportunity to make sure we never have to live through one like
this again.

We’ve certainly taken some good first steps. By working with other cooperatives, NMPF and other key farmer organizations, we are optimistic that we can accomplish some real change.

John Wilson grew up on a dairy and livestock farm. He oversees DFA’s governmental and public affairs, regulatory initiatives and national milk marketing activities, including customer relations and economic analysis.

John Wilson
DFA Senior Vice President,
Marketing and Industry Affairs