Maine’s dairy farmers closely watch fate of tier payment program

Posted April 03, 2012, at 6:34 p.m.

MACHIAS, Maine — Maine’s dairy farmers will be paying close attention this week to a vote on the state’s unique dairy stabilization program, or tier program, as the price they are paid for their milk continues to plummet.

Although it can cost a small farmer up to $28 to produce 100 pounds of milk, they often get paid far less. In August 2011, the average price of milk was $23.22 per hundredweight, according to Dale Cole, president of the Maine Dairy Industry Association.

“In February, it had dropped to $18.44 and March’s estimate is lower than that,” Cole said.

The tier program, paid for through the state’s General Fund and balanced by a milk handler’s fee, provides a safety net for dairy farmers when the volatile price of milk drops and closes the gap between the price paid and the cost of production.

Milk is the only commodity in the country that has its price set by federal order rather than the marketplace.

“Maine’s dairy industry is challenged,” Walt Whitcomb, state commissioner of agriculture and a dairy farmer, said Monday. “The stark realities of high grain and fuel costs are present every day on the farm.”

Maine’s tier program is watched closely by the rest of the country and is considered a success story, instrumental in keeping some farms viable.

But this year, members of Maine’s Agriculture, Forestry and Conservation Committee couldn’t agree on just how much it costs to make milk in Maine, which is a key number in the tier program payment formula. They have sent a divided report to the Legislature, according to committee Chairman Rep. Jeff McCabe, D-Skowhegan, with different cost-of-production values.

When the price Maine farmers are getting from the marketplace dips below the cost of production, the tier program kicks in and farmers get a payment. Before this session, the cost of production in Maine was estimated between $18 and $25 per hundredweight of milk, depending on the size of the farm. But farmers were receiving between $11 and $23 per hundredweight from the marketplace.

Whitcomb said a combination of events are affecting the tier program, including revenues.

“The forecasts earlier this year indicated there would be plenty of revenue,” Whitcomb said. “And then, just a few weeks later, prices began dropping dramatically.”

Whitcomb said the crashing prices paid to farmers are rooted in overproduction in California.

“There has been a huge increase in the number of cattle in California, Texas and Idaho, and that sets the benchmark for prices nationwide,” Whitcomb said.

During Agriculture Committee deliberations last month, new figures, which McCabe said include farm labor costs and depreciation on small farms for the first time, increased the cost-of-production values from $18-$25 to $21-$28. The new figures were submitted after an intensive study by Rick Kersbergen of the Waldo County Cooperative Extension office.

“You know we are watching this vote closely,” Cole said Monday. “We are in a hell of a pickle with these dropping prices.”

The fear is that if Maine continues to lose dairy farms, consumers will end up buying milk imported from states as far away as California.

“There was great fear initially that the program wouldn’t be funded at all,” McCabe said in a recent interview. But after two work sessions, McCabe said the Republicans serving on the committee opted to submit last year’s numbers while the committee’s Democrats opted to use new numbers that McCabe said more accurately reflect today’s costs of labor, energy and fuel.

Whitcomb said the cost-of-production figures were updated from 2005 statistics to 2010 numbers, but they still don’t reflect today’s increases of 30 percent to 40 percent for heating and fuel.

Maine had 51,000 herds of dairy cattle in the 1950s. Today there are 304.

Since 2004, when the dairy stabilization program was enacted, Maine has continued to lose farms — 75 dairy farms, or 19 percent of the industry, through 2011. But the dairy industry has suffered extreme losses in Vermont (52 percent) and New Hampshire (46 percent) over the same time period.

The program has four levels of production, depending on farm size, and each tier has a different target price. To fund the program, milk-handling fees are collected by the Maine Revenue Service from milk processors and deposited into a dedicated account within the General Fund, from which payments are disbursed. If the price of milk is high, no payments are made. When it drops, the program assists the farmers.

Since 2007, $30 million has been paid to Maine’s dairy farmers through the tier program.

Whitcomb said because the process is repeated annually, it is difficult for politicians and farmers to go through it every year.

“It is very discomforting, gut-wrenching,” he said. “From an administrative point of view, we are caught in a funding squeeze.”

The agriculture commissioner said he wants to introduce legislation next year to eliminate the need to authorize the tier program every year. He offered no specifics about his plan.

Whitcomb predicts that prices will continue to drop and will create “a very significant problem at the end of this year.” He said prices this fall are projected to be even lower than today’s.

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