State postpones slashing milk subsidies

By Sharon Kiley Mack, BDN Staff
Posted Jan. 22, 2009, at 9:02 p.m.

AUGUSTA, Maine — Maine’s 330 dairy farmers dodged a collective blow this week when proposed deep cuts to state milk subsidies were shelved until May, when they will be reviewed anew.

The proposals would have slashed Maine milk price supports by 37 percent, a cut that industry experts predicted would push some farmers out of the business.

Even though the issue has been put off, the $12 million state subsidy program is projected to fall $4.8 million short of meeting the farmers’ needs. The state subsidy provides a safety net when the federally set price of milk dips below $17 per 100 pounds of milk.

“The gap is because the bottom has fallen out of milk prices [paid to farmers],” Julie Marie Bickford of the Maine Dairy Industry Association said Thursday. “Because the price crash is just happening now, the money to fund the gap is not in the supplemental budget. That is why the [Legislature’s] Appropriations Committee said they did not have to discuss it. But make no mistake, there will be a shortfall and it will have to be reviewed.”

For some farmers, the gap could mean going out of business. If enough farms are lost, Maine consumers can expect to be drinking milk imported from other states, likely at an increased cost.

Maine’s milk support program, which was enacted in 2004, kicks in only after any federal support programs, bonuses or premiums offered by processors to farmers are paid.

The amount farmers receive through the federal Milk Income Loss Compensation program is subtracted from the amount they are eligible to receive through the state subsidy program, according to Bickford.

The MILC program provides assistance whenever market prices for milk fall below $16.94 per hundredweight. Under the program, direct payments to farmers are provided up to the first 2.9 million pounds of milk per year to supplement low market prices. That’s a relatively small amount of milk, meaning larger farms get relatively little aid from the federal government.

Because it costs more to make milk in Maine than anywhere else in the country, the state program has stabilized the industry and slowed the loss of farms, industry experts said.

When milk prices are high, farmers get nothing from the state program. But when prices drop too low, the state subsidy kicks in to help make up for what the federal subsidy does not. Farmers must apply to receive the state subsidy.

Maine’s Dairy Stabilization Tier Program pays out an average of $12 million a year, based on milk prices and production, and is balanced by a milk handling fee paid by the consumer that brings in about $6 million.The other $6 million comes from the General Fund.

Tough times are looming as milk prices paid to farmers, which began dropping a month ago, are expected to plummet to an all-time low by March and not rebound until September, fueled by the recession and a dramatic slowdown in consumer spending.

Prices paid to farmers by producers per hundredweight of milk for last June were $19.56. A price of $11.54 is predicted for March, according to industry experts.

Even with the state subsidy, which when combined with the federal subsidy brings milk up to a target price of $17 to $20, farmers still will experience a shortfall when compared with what it costs them to produce milk.

A soon-to-be-released study by the University of Maine pegs the current cost of milk production in Maine at $24.50 per hundredweight, excluding any farm profit.

For 20 of Maine’s largest dairy farms, which each produce more than 1.3 million pounds of milk a month, it could mean a loss of at least $58,000 a month.

Brian “Barney” Wright of The Wright Place in Clinton said he would be paying only interest on his farm loans until the price crisis abates.

Wright has a crew of 12 at his farm and four of them are family members. Together they milk 650 cows.

“It’s going to be tough,” Karen Piper of Embden said. The Piper Farm milks 525 cows. “While the milk price is dropping, inputs — such as feed costs, seed, fuel — are rising.”

In Exeter, Robert Fogler, who milks 950 cows, was more optimistic.

“There is no question it’s going to be tough for everyone, large or small,” he said. “But if you look at the pattern the last 10 to 15 years, there have always been highs and lows. We’ll deal with it.”

Dealing with the specter of farm losses will be key to the entire economic picture in Maine, Bickford said.

“Dairy is a $570 million industry that pays $25 million in state and local taxes,” she said. “It provides 4,000 jobs and there are 700,000 acres of dairy-related farmland. If dairy fails, all agriculture fails. The feed dealers, the equipment dealers, the fuel suppliers — they all fail.”

“Price volatility like this is not good for any industry,” Douglas Carr, legislative lobbyist for Oakhurst, one of Maine’s three major processors, said Thursday. “For dairy, unfortunately, this is just the latest instance of volatility.”

Carr said the magic number of dairy farms that Maine would require to maintain its infrastructure is 300.

“And it would make a great difference if a small farm, which produces, say, less than 67,000 pounds of milk a month, goes out, versus a large farm making 12 million pounds of milk a year. [But] we have got to stay above 300 to retain critical mass,” he said.

Just 10 years ago, there were more than 900 dairy farms in Maine. Today there are 280 small farms and 50 medium and large farms. The large farms, Carr said, produce 60 percent of Maine’s milk.

Without critical mass, Maine — which now supplies enough milk for its own consumption — would become a milk importing state. Since all other New England states except Vermont also import their milk supplies, Maine consumers would have to reach beyond the Eastern Seaboard for fresh milk. Industry experts say that would mean milk trucked in from California, Arizona and New Mexico.

Industry leaders also say that prices of milk in the grocery stores are not expected to reflect the farmers’ losses, as food companies will try to maintain their profit margins as long as they can. State officials estimate that approximately $1.10 of each gallon of milk sold in Maine goes into the farmer’s pocket.

Bickford said that one thing has changed because of this recent price crisis: Maine dairy farmers are no longer divided, with small farmers and large farmers’ interests pitted against each other.

“The real victory here was that for the first time, we had a room full of farmers who came to agreement, arm in arm, that all farmers should be treated equally,” she said. “That is huge for our industry.”

http://bangordailynews.com/2009/01/22/news/state-postpones-slashing-milk-subsidies/ printed on September 20, 2014