Contact
Jennifer Krause
Jennifer@dh-cpa.com

Sales levels increasing employment remains stable; capital spending decreases demands for Shumlin to address healthcare and broadband issues

Williston, VT January 31, 2012 – The Certified Public Accounting firm of Davis & Hodgdon Associates CPAs – PLC, located in Williston, Vermont, conducted an Economic Survey earlier this month regarding the future of Vermont-based businesses. The survey was based on one developed and used by the Vermont Business Roundtable. The survey was completed by more than 50 state businesses.

The firm’s client base, made up of organizations located across the state, responded to a range of questions. Respondents were asked to identify their type of industry, headquarter location and scope of marketplace along with forecasting their company sales, capital spending, employment status and best venue for advertising. In addition, they were asked to identify economic issues that respondents would like to see addressed by Governor Shumlin in 2012.

Vermont industries surveyed included construction, educational services, finance and insurance, health care and social assistance, hotel and restaurant, manufacturing, professional and technical, retail, transportation and warehousing and wholesale trade.

Respondents were asked how they anticipated their companies’ sales changing over the next six months. Over half (55%) foresaw their sales increasing by 10% to 30%. Only 10% estimated that sales would decrease by the same percentage range. Approximately 31% believe their sales levels will remain the same for this period.

When asked to forecast their companies’ capital spending over the next six months, 56% indicated they would see decreases of over 70%. Only 34% indicated they would increase their capital spending.

On the employment front, 46% of the businesses surveyed responded that they did not anticipate any changes in their companies’ employment levels over the next six months. However, 38% intend to hire one to three people in the same time period. Only 4% of respondents indicated they will decrease hiring by three to ten people.

Of these Vermont businesses surveyed, it was revealed the use of online advertising surpasses print, radio and television combined (39% versus 16%, 6% and 4% respectively). However, “other” forms of advertising including word-of-mouth, sales calls, meetings and client referrals came in at 35%, slightly behind online advertising including social media platforms as the best venue for advertising in the Green Mountain state.

Respondents indicated they want a number of business economic issues addressed by Governor Shumlin this year. Not surprisingly, concerns over rising healthcare costs and the need for improved broadband service top the list.

How does Davis & Hodgdon’s managing partner, John Davis, sum up the results? “The waters appear calm and this is significant in terms of moving forward,” shares Davis. He continues, “These economic indicators, based on a sampling of thriving Vermont-based organizations doing business in- and out-of-state, show promise. Sales are projected to increase, employment is stable and businesses are still remaining prudent with capital spending somewhat decreasing. We also see that business owners are demanding the Governor address important issues like healthcare costs and improved broadband service. All of this bodes well for our state’s economic future. Compared to some other states, I believe we are in an enviable position to move forward.”

For complete survey results, go tohttp://survey.constantcontact.com/survey/a07e5gqy6wigwhzwc0k/results

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VTDigger

General Fund

Secretary of Administration Neale F. Lunderville released the October 2010 General Fund Revenues today. October is the fourth month of fiscal year (FY) 2011. General Fund revenues totaled $92.28 million for October 2010, and were +$1.27 million or +1.40% above the $91.01 million consensus revenue forecast for the month. Year-to-date General Fund performance of $373.93 million was +$13.71 million, or +3.81% ahead of year to date target of $360.22 million. As was the case last month, this +$13.71 million overage is almost fully attributable to one-time bank franchise receipts in August and likely one-time corporate income tax receipts in September.

The monthly targets reflect the revised Fiscal Year 2011 Consensus Revenue Forecast approved by the Emergency Board at their July 14, 2010 meeting. Statutorily, the State is required to revise the Consensus Revenue Forecast two times per year, in January and July; the Emergency Board may schedule interim revisions if deemed necessary. The next Emergency Board meeting will be scheduled for January 2011.

Personal Income Tax (PI) receipts are the largest single state revenue source, and are reported Net-of-Personal Income Tax refunds. Personal Income Tax receipts for October were recorded at $47.98 million, or -$0.01 million or -0.02% below the monthly target of $47.99 million.

Corporate Income Taxes for October, which are also reported net-of refunds, were recorded at $3.70 million against a target of $2.78 million, or +$0.93 million (+33.34%) above target.

The consumption taxes experienced mixed results for October; Sales & Use Tax receipts of $20.17 million exceeded the monthly target by +$0.12 million (+0.60%), while Rooms & Meals Tax receipts of $10.66 million fell below target by -$0.02 million (-0.21%).

The year to date results for the four major General Fund categories are as follows: Personal Income Tax, $181.65 million (-0.03%); Sales & Use Tax, $73.73 million (+0.75%); Meals & Rooms Tax, $44.74 million (-0.04%); and Corporate, $26.71 million (+55.78%). Secretary Lunderville noted that, “As was the case last month, approximately $7.2 million of the favorable year to date Corporate Income Tax results was associated with a very small number of corporate estimated payments. We remain concerned that these estimated payments may be overstated and that some portion will be refunded when corporate income tax returns are filed. Our economist views this above target result as a one-time event and not indicative of an economy improving more quickly than expected.”

The remaining tax components include Insurance, Inheritance & Estate Tax, Real Property Transfer Tax, and “Other” (which includes: Bank Franchise Tax, Telephone Tax, Liquor Tax, Beverage Tax, Fees, and Other Taxes). The results for the month of October were as follows: Insurance Tax, $021 million (-32.26%); Estate Tax, $1.05 million (-22.24%); Property Transfer Tax, $0.77 million (+3.32%); and “Other”, $7.74 million (+8.95%). Year to date results for these categories were: Insurance Tax, $8.49 million (+0.45%); Estate Tax, $3.72 million (-29.86%); Property Transfer Tax, $2.82 million (-11.42%); and “Other”, $32.06 million (+21.09%). The majority of the favorable year to date results in the “Other” category were due to unanticipated settlement activity in August in Bank Franchise Taxes.
Transportation Fund

Secretary Lunderville also reported on the results for the non-dedicated Transportation Fund Revenue for October. Total non-dedicated Transportation Fund receipts of $18.01 million for the month were slightly below target by -$0.46 million (-2.47%), against the monthly target of $18.46 million. The year to date non-dedicated Transportation revenue was $72.50 million versus the target of $72.94 million (-$0.43 million, -0.59%).

Individual Transportation Fund revenue receipts components for October were: Gasoline Tax, $5.55 million or +7.10% ahead of target; Diesel Tax, $1.25 million or -12.38% short of target; Motor Vehicle Purchase & Use Tax, $4.32 million or +1.30% above target;

Motor Vehicle Fees, $5.55 million or -8.16% behind target; and Other Fees, $1.34 million or -13.56% short of the monthly target. The October year to date Transportation Fund revenue results were: Gasoline Tax, $21.65 million or -1.29% short of target, Diesel Tax, $4.81 million or -1.49% below target; Motor Vehicle Purchase & Use Tax, $16.74 million or -2.16% below target; Motor Vehicle Fees, $23.61 million or +2.78% above target; and Other Fees, $5.69 million or -5.73% short of target.

Secretary Lunderville also reported on the results for the Transportation Infrastructure Bond Fund (“TIB”). TIB Fund Gas receipts for October were $1.57 million or +18.03% above target; year to date receipts of $5.76 million were -0.99% below target. TIB Fund Diesel receipts were $0.06 million or -62.05% below target for the month; year to date TIB Diesel receipts were $0.56 million or -4.23% behind target. TIB Fund receipts are noted below the following table: Transportation Fund By Major Element (In Millions)*

Education Fund

The “non-Property Tax” Education Fund revenues (which constitute approximately 11.9% of the total Education Fund sources) were released today by Secretary Lunderville. The non-Property Tax Education Fund receipts for October totaled $13.81 million, or -$0.06 million (-0.43%) short of the $13.87 million target for the month. Year to date Education Fund revenues were $51.10 million or -0.37% behind the year to date target of $51.29 million.

Conclusion

“The loss of momentum in the economic recovery continues to cause concern about the stability of the recovery,” said Secretary Lunderville.

“Compared to prior fiscal years, October year-to-date results for fiscal year 2011 have exceeded fiscal year 2010, but remain 2.9% below fiscal year 2009 and 2.3% below fiscal year 2008 for the same four-month period,” continued Lunderville. “The current forecast does not project a return to fiscal year 2008 revenue levels until fiscal year 2013.”

“The year-to-date General Fund results are 3.81% ahead of target. However, adjusting for the $12.1 million in one-time activity, the results through October would be 0.4% ahead of target,” Lunderville concluded. “While we are pleased that our current Consensus Forecast will hold until the January 2011 revision, we do not see the current results as an indication of the economic recovery surging ahead.”

VTDigger

Matt Dunne, 8/2/2010

Matt Dunne laid the blame for a significant decline in Vermont business startups at the feet of Republican Gov. Jim Douglas on Monday.

The total number of businesses launched in the state dropped significantly from 2003 through 2009, from a high of about 2,700 new companies to a low of about 1,800, according to a chart Dunne presented at a press conference in Winooski. The chart was based on data from the Vermont Secretary of State’s office.

Dunne, one of five candidates in the Democratic gubernatorial primary, told an audience of several dozen reporters and business owners that the sharp dropoff began the year the Douglas administration began in 2003, and he made a point of singling out Lt. Gov. Brian Dubie, the sole Republican candidate for governor, for a share of the blame.

Dubie has been campaigning hard on a pro-business platform, with a sharply different view of the state’s economic difficulties, blaming too much government, taxation and regulation.

Dunne countered Monday, “We are losing ground and losing ground quite dramatically.” The state, he added, “doesn’t have the farm team for the next generation of IDXes.”

The former state senator asked rhetorically, “What went wrong?”, and then proceeded to tick off a list of missteps. Dunne said the Douglas administration failed to implement a comprehensive business plan, to invest in higher education, to foster discussion between state leaders and business leaders, to address the state’s complex tax structure and regulations, and to find a way to stem the burdensome costs of doing business in Vermont – particularly escalating health care expenditures.

All of these factors are stifling the state’s economic growth, Dunne said.

Though Vermont has topnotch quality of life and education ratings compared with the rest of the country, its business rankings, according to a recent CNBC study, are near the bottom. Vermont is ranked 40th for technology and innovation, 46th for transportation and infrastructure, 43rd in cost of
living, 37th in business friendliness and 40th in access to capital for businesses.

“Vermont succeeds when it sends out intellectual property and brings in cash – whether it’s value-added food, software or comic books,” the Google community affairs executive said.

State government needs to take a fundamentally different approach to the economy, Dunne said, because the state is not a “sweet spot” for large out-of-state corporations. In his view, small startups create a necessary economic “churn” when they grow successful enough to be acquired by bigger
companies. Vermont should also focus on the “creative” economy, communities that attract congregations of innovative artsy people; its “place-based” economy, that is its parks, downtowns and tourism; and the “slow money” economy, investments in agriculture, food markets and historic preservation.

He said the state’s brand potential, its natural beauty and convenient location – near Montreal, Boston and New York – give entrepreneurs a distinct marketing advantage that has not been capitalized on. In addition, the state’s high bond rating should enable it to make revenue bond investments in broadband that would give Vermonters Internet access “to the last mile of every town.”

The broadband investment would create 5,270 jobs and bring an influx of $275 million into the state, according to a study he cited from “Connected Nation.” As governor, Dunne said he would also create a “pre-permitting system” for redevelopment of 4 million square feet of unused industrial space in Vermont. He called for investments in rail and air transportation for business travel, “next generation” agriculture, including an “Intervale” in every county, as well as shared processing facilities and slaughterhouses.

Dunne would give small businesses access to capital through micro-loan programs, a capital gains tax incentive for investments in Vermont companies and an expansion of the “seed capital fund” for startups.

He proposed a “service scholarship” program to reduce the high debt load carried by Vermont college graduates and additional funding for job training, preschool and higher education.

Health care costs, which are rising at a rate of $1 million a day, are too burdensome for local companies, he said, and he proposed a self-insurance plan for the state that would put the administration of health care in the hands of one insurer regulated by the state.

He also said the “management culture” in Montpelier needs to change. Dunne said the regulatory process needs to be more predictable, and government spending on private contracts ought to be more transparent.

“We are in the dark ages as a state and we’re unable to take advantage of the resources we have,” Dunne said.

Dunne is the fourth Democratic gubernatorial candidate to release an economic development plan in the last few months. He did not release specifics regarding the costs of the aforementioned programs.

Read a copy of Dunne’s report, “The Innovation State.”

VTDigger

Contact: Rep. Kesha Ram, 881-4433

February 2, 2010

In light of a meeting at the White House tomorrow regarding energy and climate issues to which Governor Douglas has been invited as part of a select group of governors, a nonpartisan letter was circulated among state legislators today urging him to support comprehensive federal clean energy jobs legislation [see attached letter].

The effort to disseminate this letter was spearheaded by Reps. Kesha Ram (D-Burlington) and Joseph Baker (R-West Rutland), with both taking the lead as signatories and making announcements in their respective caucuses.

“It is vital that Vermont be ahead of the curve in attracting and promoting the industries that will create clean energy jobs, as these job sectors are growing at a rate 250 percent faster than the rest of the economy. The 64 signatures to this letter demonstrate that Vermont legislators of all political persuasions agree on this,” said Rep. Ram. “Governor Douglas has the opportunity to solidify what we hope will be an ongoing partnership with the White House and Congress in ensuring that our state and federal leadership are working together to continue building a green, clean energy-based economy in Vermont.”

Rep. Ram was alerted to the governor’s imminent trip as part of her role as the Vermont legislative lead in the national Coalition of Legislators for Energy Action Now (CLEAN), an organization of state legislators from across the country communicating regularly with the White House and seeking strong federal action on creating clean energy jobs and curbing greenhouse gas emissions. CLEAN has gathered 1201 signatures from state legislators nationally to urge Congress to enact strong clean energy jobs and climate legislation, including 47 Vermont legislators [see attached document].

Signatories to the letter include the chairs of both House and Senate Natural Resources Committees, Rep. Tony Klein and Sen. Virginia Lyons. They also include Republican Vice Chair of the House Natural Resources Committee Rep. Joseph Krawczyk, House Majority Leader Rep. Floyd Nease, Assistant Majority Leader Rep. Lucy Leriche, and Progressive Caucus Chairwoman Rep. Sandy Haas.

“The Green Mountains are on the cusp of becoming greener. This is a nonpartisan letter to encourage Washington to look at our example for the rest of the country,” said Rep. Baker.

National CLEAN Letter
Gov Douglas Clean Energy Letter

VTDigger

The U.S. Department of Agriculture began processing payments under the Dairy Economic Loss Assistance Payment program just prior to Christmas. Farmers have already begun seeing deposits.

Sen. Patrick Leahy (D-Vt.), a senior member of the Senate appropriations committee, and Rep. Peter Welch (D-Vt.), cochairman of the Congressional Dairy Farmers Caucus, helped guide the measure through the congressional appropriations process.

This funding will result in a payment of about $8,000 to the typical Vermont farmer.   The Sanders dairy assistance measure provides $290 million for direct support to dairy farmers and another $60 million set aside nationwide to purchase cheese for food banks and nutrition programs.

The county-specific funding levels as calculated by the U.S. Department of Agriculture are $1,206,542 for Addison County; $89,328 for Bennington County; $378,141 for Caledonia Country; $241,599 for Chittenden County; $113,441 for Essex County; $1,505,072 for Franklin County; $114,982 for Grand Isle County; $161,587 for Lamoille County; $371,581 for Orange County; $730,752 for Orleans County; $273,943 for Rutland County; $143,378 for Washington County; $139,186 for Windham County; and $114,225 for Windsor County.  In total, Vermont farmers will receive $5,783,757 in emergency aid.

Sanders said; “At a time when family-based dairy farmers in Vermont and across the country have received the lowest milk prices in 40 years, these emergency payments will be a real help in keeping many Vermont farms viable and in business.  The truth is, however, that we need long-term solutions to the dairy crisis in order to create a situation where farmers receive fair and stable prices for their product.  My office is now working with dairy farmers and their organizations in Vermont and around the country to examine how we go forward – including the need for supply-management.”

Leahy said, “Slumping revenues have pushed dairy farmers to the brink, and these payments will help many to hang on.  Secretary Vilsack pledged to promptly get these funds into farmers’ hands, and we appreciate his efforts.  We also commend the Farm Service Agency county staff for working so hard to get these payments out to farmers so quickly during the holidays.”

Welch said, “2009 has been a tremendously difficult year for Vermont’s hardworking dairy farmers. While this emergency assistance will be helpful to many farmers struggling to hold on until prices rebound, it is clearly just a drop in the barrel. I am hopeful that, working with Vermont farmers and the Congressional Dairy Farmers Caucus, we will make great strides in 2010 toward building a dairy industry that is sustainable in the long term.”

The average price farmers received for their milk fell this year to as low as $11.30 per hundredweight, down from $19.30 in July 2008.  Prices have recently rebounded to $15 per hundredweight. It costs farmers at least $18 per hundredweight to produce milk. As prices plunged, family dairy farms in Vermont and around the country went out of business.

For farmers who may not have participated in the Milk Income Loss Contract or MILC program, sign-up for this aid remains open until January 19, 2010.  They should go to their local FSA County Office and submit their production numbers for February through July 2009.

Contacts:

Will Wiquist (Sanders): 202 224-5141

David Carle (Leahy): 202 224-3693

Paul Heintz (Welch): 202 577-7970

VTDigger

Vermont coops weigh programs to rein in milk supply

Marie Audet, right, talks with her husband Eugene and Margaret Laggis at a hearing in St. Albans recently. Audet is one of the founders of Dairy Farmers Working Together, a grassroots group that is pushing a growth management program for the dairy industry. Photo by Terry J. Allen.

Raw milk is a highly perishable product. Once it leaves the cow’s udder, it has to be processed into bottled milk, cheese, butter or yogurt within a few days.

That fact makes dairy farmers more vulnerable to the vagaries of the market than other food producers. Dairymen (and women) can’t wait for a better price. Unlike the farmer who raises soybeans or carrots, a dairy producer’s raw milk has to be processed almost as soon as it’s been vacuum pumped from the Holstein and piped into the steel bulk tank.

On the farm, cows have to be milked no matter what, and day to day that imperative trumps everything else – even the glut of dairy products on the global market.
And when the milk supply outstrips demand, as it does in predictable, 36 month cycles, according to a Cornell University study, milk prices plummet as they did in 2006 and at the beginning of this year.

The current downturn is the worst in living memory. Milk checks are half what they were in 2008 and, in effect, because of the high cost of production, farmers are paying dairy processors to take their milk. (The cost of production is $16-$18 per hundredweight, or 11.6 gallons of milk; farmers receive about $11 per hundredweight.)

Farmers won’t see break-even prices for raw milk until July 2010, according to USDA projections, and economists are already predicting the next downturn — in 2012.

It’s counterintuitive, but some farmers are already bulking up on heifers (teenage cows) in order to profit from a potential price uptick next year, and it’s that surplus of heifers that will likely set off the next dairy market crash, according to Dr. Mark Stephenson, an extension economist with Cornell University.

Currently, there are two short-term fixes for the oversupply problem: killing thousands of cows and/or letting hundreds of farm businesses fail nationwide.

Since last winter, the dairy industry group Cooperatives Working Together has taken more than 225,000 cows out of production in the United States to counter a 2.6 percent, or 5 billion pound annual milk surplus, according Jim Tillison, chief operating officer for CWT.

In Vermont, 26 farms have taken the herd buyout since December of last year, and the process of natural selection has begun. In all 32 have gone under, and UVM Extension agricultural economist Bob Parsons predicts 150 Vermont dairy farms will sell out by next summer. There are 1,046 farms left in the state currently.

Beyond survival of the fittest?

Several dairy groups have proposed a less painful, more long-term solution to the problem: growth management. Proponents believe that if farmers limit the amount of milk they produce, they can control the supply, lessen the volatility of the milk market and ultimately get a better price for their product.

“The quickest way ever for us to make more money, to bring in more revenue is to increase production, whether prices are high or low,” says Marie Audet, a Bridport farmer and member of Dairy Farmers Working Together, the grassroots group that began looking at growth management options in 2006. “So we’re creating our own surpluses. Basically, the only tool we have is what we sell. We’re trying to fix that.”

A coalition of three organizations — DFWT, Holstein Association USA and the California Milk Producers Council – is proposing that Congress adopt a new, “budget-neutral” program that would incentivize farmers to limit increases to their milk supply.

Under the plan, production levels for each farm would be averaged over a three-year period. These averages would be used to calculate a base annual production level for each farm that includes a small percentage increase. Farmers who go beyond the preset level in a given year would be required to pay a market access fee. Everyone else would receive a share of the pooled fees.

Unlike CWT’s herd buyout program, participation would be mandatory. An advisory board and the USDA would administer the program, according to the Holstein Association.

“Supply management is kind of going to cut out some of the opportunity for speculation in the middle,” says Lucas Sjostrom, of the Holstein Association. “Right now we have swings between $10 hundredweight and $20 hundredweight which really equates up a $1.50 swing in the grocery store, however even though our prices have dropped, the prices in the store have not. So if we could manage supply with the perishable product, which in 7 days needs to be either turning into cheese or be in fluid milk in the store, we can give farmers an opportunity to make a profit instead of getting rid of one-third of the dairy farmers every three years.”

Dr. Mark Stephenson, an economist with Cornell University’s extension service, says the 36-month milk cow breeding cycle has the biggest impact on market volatility. Stephenson’s research shows that a growth management program that limited the number of cows in production would stabilize the milk supply — and prices.

Implementing such a program, however, would require an act of Congress. Sen. Bernie Sanders, D-Vt., and Rep. Peter Welch, D-Vt., have voiced support for a growth management plan. Proponents say a draft bill is under congressional review.

Last week Sen. Patrick Leahy, D-Vt., provided a meeting room for a Senate and House staff briefing on the coalition proposal. More than 30 staffers attended. A similar briefing will be scheduled in the House in the next few weeks, according to Amanda St. Pierre, of DFWT.

Sen. Patrick Leahy, D-Vt., at the Senate Judiciary Committee hearing in St. Albans. Photo by Terry J. Allen.

At the recent Senate Judiciary Committee Hearing in St. Albans, where Leahy recorded testimony about the dairy crisis, Sanders took a straw poll of support for a supply management system. Twenty or so farmers in the audience raised their hands.

The dairy cooperatives that handle raw milk in Vermont have been less enthusiastic. But all three are considering some kind of growth management option, and the issue is starting to gain traction.

Coops weigh in

The biggest news? Dairy Farmers of America, a national cooperative with 18,000 member farmers in 48 states, including Vermont, adopted its own growth management initiative last week.

DFA, which markets 35 percent of U.S. milk, is proposing that this initiative replace the national herd buyout program, according to Ralph McNall, chairman of St. Albans Cooperative Creamery, which works in tandem with DFA. Farmers would pay 25 cents per hundredweight under the proposed growth management initiative, and participation would be mandatory, he says.

The DFA initiative includes elements of the Dairy Farmers Working Together, Holstein and Milk Producers Council proposals, though there would be no market access fee, McNall says.

On a scale of 1 to 10, the decision by DFA to support growth management is a 10 for McNall. “It’s a big, big deal,” he says. “It’s the biggest deal I’ve been involved with in terms of the dairy business.”

Amanda St. Pierre of Dairy Farmers Working Together says she’s hoping DFA will be willing to talk with the coalition soon. “We’re willing to work through whatever issues need to be worked out for the good of the dairy farmers,” she says.

The directors of St. Albans also recently passed a resolution that “supports the concept of a CWT or growth management program.”

Massachusetts-based Agri-Mark, Inc., which serves 1,300 members in New York and New England, including 400 from Vermont, will consider growth management proposals among other options at its next meeting in mid-October.

Neal Rea, the chairman of Agri-Mark’s board of directors, says the cooperative is “in favor of looking at options and ideas to reduce national milk supply.” Rea says Agri-Mark was one of the first coops to support supply management in the United States through the CWT herd buyout program.

Though Agri-Mark has continued to support the Milk Income Loss Contract (a federal subsidy system) Rea says cooperative directors “have some concerns over programs that are run and controlled by the federal government.”

“If we had to make that (a DFA-style growth management initiative) a mandated program the government would probably have to be involved,” Rea says. “They’d collect the money and it would have to go through USDA and the concern is that USDA would probably have to run the program. They’d request dairy farmer input, but it very well could be a government run program determining how we spend our money.”

The National Milk Producers Federation, which represents coops and runs the CWT herd buyout program, came out with its own set of recommendations last week, none of which, with the exception of a requirement for full participation in CWT (currently 67 percent of farmers pay in 10 cents per hundredweight), appear to address the long-term effects of oversupply. An attempt to reach Jerry Kozac, CEO of National Milk, yesterday was unsuccessful.

A few weeks ago, Christopher Galen, spokesman for the trade group, said, “We at National Milk have not taken a position yet on the so-called price stabilization plan, which as you know is being promoted by the Holstein Association, by Dairy Farmers Working Together and there’s also a group in California called the Milk Producers Council and they’ve become the three musketeers, if you will, having formed a coalition to support in concept this growth management plan.”

St. Pierre says that if the industry doesn’t work with farmers to create a system that provides long-term stability consumers will suffer.

“Ultimately, who’s going to be hurt is the American consumer,” she says. “When we’re seeing consolidation of the farming industry we’re down to 55,000 dairy farmers. Couple more of these cycles and we’ll be down to 15,000 to 20,000 in the whole country.”

She is particularly disturbed by the pain her neighbors are enduring. “An eerie silence has fallen on the Vermont dairy industry,” St. Pierre says. “It’s almost grieving to be honest with you.”

McNall says if prices don’t go up soon and the long-term volatility problems aren’t resolved, the state could lose its dairy industry.

“We’re at a crossroads like I’ve never seen before,” McNall says. “It’s extremely serious. Here in the Northeast, Vermont especially, it’s on the verge of perhaps losing our dairy industry. And I’m not sure a lot of people understand that. It’s that serious. Our infrastructure is in trouble. It isn’t just us. Our bankers, our suppliers, they’re in trouble. And people can’t afford to exist like this. I don’t mean to sound that negative, but in reality dairying could change fast here in the state of Vermont. There’s no other state that depends so much on dairying as Vermont does. On a per capita basis, well, you and I have more at stake than anyone else in the country.”

Bob Wellington, an economist for Agri-Mark, Inc., the dairy processor that manufactures Cabot Cheese summed up the situation this way: “This is not a case of having no supply control. We have supply control right now and it’s harsh and it’s cruel and it’s low milk prices. We have to ask: Which system do you prefer?”

VTDigger

Senators say dairy industry consolidation hurting farmers

Sen. Patrick Leahy and Sen. Bernie Sanders listen to testimony at the Senate Judiciary Committee hearing on antitrust issues in the dairy industry on Saturday in St. Albans. Photo by Terry J. Allen.

A lack of competition may allow dominant dairy processors to “exert power” and depress the price farmers receive for raw milk, according to Christine Varney, the assistant attorney general for the Antitrust Division of the U.S. Department of Justice, who spoke at a congressional hearing held in St. Albans on Saturday.

The largest dairy processor in the country, Dean Foods, buys 70 percent of the milk produced in the Northeast. Sen. Bernie Sanders, I-Vt., has asked the Department of Justice to investigate the Dallas-based corporation’s alleged anti-competitive market practices.

Sen. Patrick Leahy, D-Vt., who called the hearing as part of a congressional investigation into “anti-competitive” dairy industry practices, asked Varney if that level of industry buying power “bothers” her.

“Competition is not very well served when you have one player in the market who controls 70 percent of the market,” Varney said. “We look very carefully at the activity in a market when you have that kind of dominance.”


Varney explained to the audience of 100 people in the St. Albans City Hall that some dairy processors have become “vertically integrated.” These manufacturers not only process raw milk, but also may own parts of the supply chain “such as distribution of its products or supply of its inputs.”

“Vertical relationships in dairy markets would include, for example, a processor entering into exclusive agreements with a specific cooperative to buy raw milk,” Varney testified.

Varney said her division would pursue an investigation of anti-trust violations allegedly perpetrated by dairy processors and would examine complaints about a lack of transparency in the industry as a whole.

“Transparency is something we all need in order to understand how we can improve the production, the health and life of the dairy industry in the United States,” Varney said.
Leahy and Sanders reiterated that Dean Foods has reaped enormous profits this year at a time when dairy farmers are facing a rip tide of red ink and going deep into debt to stay afloat.

Milk prices, which have reached 30-year lows, hovering in the $11 per hundredweight range are not expected to reach $15 per hundredweight until next summer according to USDA economists.
Meanwhile the cost to produce raw milk in Vermont has remained high – at around $18 per hundredweight – partly because farmers must buy more grain here due to the state’s short growing season.

As a result of this whipsaw of low prices and high costs, agricultural economist Bob Parsons at UVM Extension has said Vermont could lose 150 farms in the coming year.

Willard Rowell, owner of Green Mountain Dairy in Highgate, testified on Saturday that his farm will likely lose $1.6 million this year. He and his family milk 900 cows. Last year their income was $2.5 million.

Paul Doton, who milks about 60 cows with his wife and son on their 200-acre farm in Barnard, says he is scraping by because he sells maple syrup, vegetables and does some custom mowing and snowplowing.

“Without this income, I would already be out of business,” Doton said. “Doton farm, much like many other Vermont farms, cannot hang on much longer. How long can we go on losing $4,500 per month? My answer is – not long at all.”

Dean Foods reported first quarter profits of $76.2 million this year, up 147 percent above its reported earnings in the same quarter in 2008, Sanders reported at the hearing.

Sanders said the corporation paid its CEO, Gregg Engles, $116.38 million over the last five years.

“What we are seeing in recent years is a growing concentration of ownership, specifically in dairy processing,” Sanders said. “According to the dairy industry press, one company, the largest milk producer in America, Dean Foods, controls approximately 90 percent of the milk market in Michigan, about 80 percent of the milk market in Massachusetts, 80 to 90 percent in Tennessee, over 80 percent in northern Alabama, over 70 percent in northern New Jersey and in New England about 70 percent.”

In 2001, Suiza Corp. bought Dean Foods, adopted the company’s name, and formed the largest dairy manufacturing corporation in the United States. The company sells milk and other dairy products under 50 “well-known local and regional brands and a wide array of private labels,” according to its web site.

Sanders asked Varney if she would pick up an investigation into the “far-ranging anti-competitive practices” of Dean Foods and Dairy Farmers of America. The 26-month probe, conducted by career investigators at the Department of Justice, was dropped in 2006.

“It is my understanding that in August of 2006 that team recommended action against some of the dairy industry’s biggest firms, including Dean Foods, Dairy Farmers of America and National Dairy Holdings,” Sanders said. “Unfortunately, under the Bush administration it was kicked over to the political people and they decided not to pursue that investigation or take any action. Can you give us assurance that you in fact will continue that investigation and if it leads you to the conclusion that action should be taken that in fact you’re prepared to take action?”

Varney replied, “I can give you every assurance that any investigation I undertake that leads us to believe there is evidence sufficient to prosecute will be prosecuted. There is no doubt that we will prosecute that kind of activity should we find it.”

The Senate Judiciary Committee will accept written testimony from dairy farmers through Sept. 30 at Dairy_Hearing@Judiciary-dem.senate.gov.

Bob Wellington testifies

VTDigger

Dairy brochure from the Vt. Agency of Agriculture

Dairy farming is the economic engine of small town Vermont, but the industry doesn’t garner the attention paid to monolithic employers, such as IBM and Green Mountain Coffee Roasters.

No one is proposing a Circ Highway expansion for milk trucks, or economic development incentives to keep dairy farmers in state.

Maybe that’s because dairy farmers are too busy working 2,500-3,000 hours a year to advertise their role in Vermont’s economy.

By the numbers, however, dairy farming is one of the state’s economic pillars. It represents 7.8 percent of the state gross product: It will generate about $2 billion in production, employment and business interactions in 2009, according Vermont Agency of Agriculture estimates, out of a total of $26.626 billion for 2009, according to economist Jeffrey Carr, president of Economic & Policy Resources in Williston.

Dairy farmers employ roughly 7,500 Vermonters, more than IBM (around 5,300) and Green Mountain Coffee Roasters (about 1,000) combined and nearly as many as workers as state government (7,970).

What makes dairy seem somewhat inconspicuous is its location ­­– central hicksville. Farms, naturally, are concentrated in the state’s most provincial backwaters: Franklin, Addison, Orleans, Orange and Caledonia counties (in that order).

But Bob Parsons, agriculture economist for UVM Extension, says the dairy operations in these communities are anything but low profile.

“If you (look at) Franklin and Addison counties, the two biggest dairy counties, you either work outside of these towns or if you work in the town, it’s usually at a dairy farm,” Parsons says. “In some of the smaller towns in Franklin County, like Enosburg Falls, dairy is the only game in town.”

If you happen to live in a rural burg where milk producers are king, downturns in the industry are hard to ignore. That’s because in towns like St. Albans and Derby, dairy farm income can represent 25 to 30 percent of the local economy.

Parsons says a 400-cow farm can gross $1 million a year. Even if that farm only makes a 5 percent profit, he says, $950,000 is spent locally on equipment or inputs, such as grain and fertilizers.

“People forget while (dairy) may not be big in Burlington and Rutland and bigger micropolitan areas, in some parts of the state it’s probably a quarter to 30 percent of the activity,” Carr says. “If you look at Franklin County, if you look at Addison County, places like that, agriculture is probably a third of the economy.”

Every dollar generated by local farms moves around the local economy at least twice, says Kelly Loftus, communications director for the Vermont Agency of Agriculture. Farmers purchase 96 percent of their supplies from local vendors and pay more than $68 million in state and local taxes, according to agency estimates. Dairy employs 7,800 workers indirectly.

Impact of milk price declines on average farm, counties from Jan. 1-Aug. 9. Source: Vermont Agency of Agriculture

“Your economy has to be like your retirement portfolio,” economist Jeffrey Carr says. “It has to be diversified. If you don’t have a diverse economy, something happens to one of your big pillars and then the whole economy. Your big pillar catches a cold and the whole economy catches pneumonia.”

When milk prices plummet, so do the fortunes of local businesses in small towns across the state, particularly when dairy losses are as dramatic as they have been this year.

The total impact of industry losses on the state’s economy have tallied up to $225.45 million so far this year, according to ag

ency estimates.

Dairy dependent counties have been hit hardest. In 2009, farm generated income has fallen by $50.4 million in Franklin, $35.3 million in Addison, $31.4 million Orleans, and $18.7 million in Caledonia counties.

“We have these other secondary agriculture businesses, like the seed and fertilizer dealers, the veterinarians, they’re all feeling the effects of this situation,” Loftus says. “And that goes out even further into our communities, whether it’s the car dealerships or the local grocery store, all these businesses in our local communities are feeling the impacts of this dairy crisis.”

There are less tangible spinoffs, too, including tourism, which promotes the farm landscape, Vermont made products and the state’s agricultural heritage, Carr says.

“There’s a synergy there,” Carr says. “Maybe there are only 15,000 quote unquote jobs. That’s very important to certain parts of the state and can’t be ignored. It’s also very important to the Vermont tourism industry because a lot of people expect to see working agriculture when they come here and that’s a big part of their visitation experience.”

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