Vermont Agriculture Committee chairs urge Milk Commission to act on falling milk prices

The Vermont House and Senate Agriculture Chairs today sent a letter to the Vermont Milk Commission urging them to take action during their upcoming meeting to aid Vermont s dairy farmers through the latest dairy crisis. The Vermont Milk Commission is scheduled to meet on July 23, 2009. Senator Kittell, Chair of the Senate Agriculture Committee and Representative Partridge, Chair of the House Agriculture Committee commended the Commission for meeting in a timely fashion and urged them to address the fluctuation in milk prices and take action to help our struggling dairy farmers. Vermont s farmers are receiving approximately $13.81 per one hundred weight, compared to roughly $20 cwt a year ago. At the same time as the price of milk has fallen, the price of fuel, feed and sawdust have all skyrocketed, placing our dairy farmers in a dire situation.
Vermont dairy farmers are struggling as they are once again faced with a dramatic decline in milk prices, said Senator Kittell.
Our dairy farms lay at the heart of Vermont s economy and character and with the decline in milk prices being met with increased production costs we are at risk of losing these farms and everything they contribute to our state.
Act 48, passed during the 2009 session requires the Vermont Milk Commission to resume deliberations on the commission s latest version of a proposed order to establish a retail fluid milk premium. The legislators called on the Commission to follow the law and address the unpredictable price fluctuations in the milk market by revisiting the
proposed retail fluid milk premium.
It is outrageous that everyday our hard working dairy farmers are losing money to produce their milk, said Senate President Peter Shumlin. I hope that the Commission will look at instituting mechanisms that will stabilize the milk market and result in a fair price for our farmers.
Letter Follows:
July 21, 2009
Vermont Milk Commission
c/o Chair, Roger N. Allbee
Secretary of Agriculture, Food and Markets
116 State Street
Montpelier, VT 05620-2901
As chairs of the House and Senate Committees on Agriculture, we write to commend the Vermont Milk Commission for meeting on July 23, 2009 to discuss the status of the dairy industry in Vermont. Vermont farmers are once again struggling with a dramatic decline in milk prices. As a result, Vermont is at risk of losing more of the dairy farms that are the core of this state. The Vermont Milk Commission is meeting in an appropriate and timely way to address the crisis on our farms, and we thank you in advance for your hard work.
When the Vermont Milk Commission does meet, we encourage the commission to address the unpredictable price fluctuations in the milk market. Such action should include revisiting the over order premium on retail fluid milk that the Vermont Milk Commission proposed in 2008. The proposed order or a similar mechanism could stabilize the fluid milk market in Vermont allowing our dairy farmers to receive a fair price for their product and avoid the current unpredictable swings in milk prices that threaten the viability of our dairy farms.
Importance of the Dairy Industry to Vermont
The dairy industry is of vital importance to the economy, culture, and landscape of Vermont. The dairy industry contributes over $2 billion to the Vermont economy annually. No other industry in the state compares, and it is critical that in these difficult economic times, we work to protect this sector. Dairy farms and related industry are also responsible for over 7,500 direct jobs in Vermont and another 7,500 indirect jobs. In addition, dairy farms and the dairy industry pay over $68 million in state and local taxes.
Another product of the dairy industry is the open space and rural nature that has come to define the state. These open spaces and green fields attract thousands of tourists to Vermont each year and make our state a wonderful place to live and raise families. The dairy farms of Vermont must be insulated from the unpredictable price fluctuations and market manipulations that have plagued the industry and that burden our farmers. Without state action, we risk losing our dairy farms and all that they contribute to Vermont.
Continuing Fluctuations in the Milk Price
Review of the price fluctuations in the milk markets over the past several years highlights why something must be done. In 2003, the blend price of milk was approximately $13.10 cwt. In 2004, the blend price of milk rose to approximately $16.95 cwt. In 2006, it dropped back down to approximately $13.81 cwt. In 2007 and into 2008, prices rose to between $18.00 and $20.50 per hundred weight allowing farmers to experience a period of profitability. However, this period of prosperity was brief, and in 2009, the price per hundred weight plummeted to approximately $13.00 cwt. This means that farmers today are receiving the same price for their milk that their received in 1980 29 years ago.
These unpredictable fluctuations in prices are more troubling when compared to the actual cost of milk production and what a farmer must receive in order to break even. In 2003, farmers could break even if they received approximately $12.83 cwt. In 2006, they could break even if they received $14.13 cwt. Starting in 2007 and continuing to today, the price of production skyrocketed. The prices of feed, fuel, fertilizer and sawdust increased. All prices increased and stayed high except the price of milk. Consequently, in 2008 and 2009, the average cost of production according to the Northeast Dairy Farm Summary was over $17.88 per hundred weight.
Unfortunately, the cost of production will not decrease any time soon. In fact, the cost of production at some farms in Vermont is already well over $18.00 cwt. If farmers continue to be subject to the unpredictable fluctuation of a milk market in which they could receive only $12.00 to $13.00 cwt, Vermont will assuredly lose more and more farms and the contributions these farms make to the state s economy, culture, and landscape. It is clear, that the state must do something to address the price of milk in Vermont. As the state entity charged with the authority to regulate the dairy industry, we ask that the Vermont Milk Commission take the appropriate and necessary actions to address the dairy crisis in Vermont.
Over Order Premium
In the past, the state has taken action to address the unpredictable fluctuation of milk prices. Yet while Vermont has been able to afford to enact interim assistance programs in the past, existing general fund dollars are no longer available and other alternatives must be explored. In September of 2008, the Vermont Milk Commission proposed an order to establish a retail fluid milk premium on the fluid or beverage milk products sold at retail within the state of Vermont. The proposed premium was primarily intended to interrupt the upward ratcheting effect on Vermont retail milk prices caused by the volatility in federally regulated minimum fluid milk prices. In addition, the proposed premium would signal the wholesale and retail sectors of the Vermont fluid milk marketplace to return to Vermont producers a portion of the surplus profit margin present in at least the dominant chain store segment of the retail sector. The proposed order s correction of the present ratcheting effect in the Vermont milk marketplace theoretically would result in both long-term stabilization of consumer prices and marginal enhancement of producer prices, without an increase in consumer prices.
The order would have provided Vermont dairy farmers with a predictable milk price on which they could maintain a business and was supported by the Senate and House Committees on Agriculture. Unfortunately, the Vermont Milk Commission failed to issue the order establishing a retail fluid milk premium. After the inaction of the Milk Commission became clear, the Senate and House Committee on Agriculture held several hearings regarding the proposed order and proposed methods for going forward with a functional and legal order. These hearings resulted in the enactment of Senate Bill S.89 as Act No. 48. Act No. 48 requires the Vermont Milk Commission to resume deliberations on the commission s latest version of a proposed order to establish a retail fluid milk premium. Today, we again request that the Vermont Milk Commission follow the law and revisit the proposed retail fluid milk premium.
Critics of the fluid milk premium proposed by the Milk Commission may claim that the proposed order violates the Commerce Clause of the U.S. Constitution and would be challenged in court. These constitutional issues may be real, but they may also be addressed by certain simple amendments to the proposed order. For example, during committee hearings on the proposed order, Professor Peter Teachout, a constitutional law professor at Vermont Law School, recommended that the premium on fluid milk products be decoupled from any subsidy program for dairy farmers.
As Professor Teachout noted, state subsidy programs are constitutional, and states can establish programs that pay farmers for milk production, as the state has done in the past. Similarly, states have the power to assess a premium on products. Constitutional problems arise when a premium assessed on all milk products, regardless of origin, is used solely to provide a subsidy to Vermont farmers. This issue is eliminated when any assessment is paid into the general fund of the state and commingled with other state revenues. Commingled general fund dollars from all sources of general fund revenue would then be used to fund a program to subsidize milk production in the state. In the opinion of Professor Teachout, such decoupling of the assessment and the subsidy likely would be constitutional.
Conclusion
It is imperative that the state take some action to aid and protect the dairy farms, dairy economy, and dairy families of Vermont. The Vermont Milk Commission should revisit the over order premium on retail fluid milk. The commission should amend the order to cure any possible constitutional issues, and it should issue the order as soon as possible. If the order is not issued and the state fails to otherwise act, the state of Vermont will undoubtedly lose more dairy farms. If we lose these farms, we will ultimately lose what we all know as Vermont.
Sincerely,
Senator Sara Kittell Representative Carolyn Partridge
Chair, Senate Committee on Agriculture Chair, House Committee on Agriculture
Source: Senate Pro Tem's Office