Vtdigger.org interviewed Agency of Agriculture Secretary Roger Allbee about an uptick in milk prices this summer that may stem the number of anticipated dairy farm bankruptcies this spring. Recently, Allbee public announced that he expected as many as 200 farms to go out of business this year. He reversed that dire prediction on Wednesday, and said he thinks most Vermont farmers will survive the devastating 18-month price decline that has caused many to go further into debt. At the nadir of the crisis, prices reached 30-year lows. From Jan. 1, 2009 to the present, Vermont has lost 62 farms.
What follows is a Q and A with Allbee from June 9, 2010.
Vtdigger.org: About a month ago you predicted that a number of Vermont dairy farms would go out of business. Are you seeing a lot of bankruptcies?
Allbee: Right now we’re not seeing a lot of bankruptcies in dairy. I think a lot of it has to do with the fact that the prices have come up a little bit. There’s a little more optimism. And I think the other fact is that to some extent the price has come up enough on cattle and alternatives that those who are in it, and may be thinking of going out, don’t have any alternative these days. There’s a third combination, and that is that many of the lenders like Vermont Economic Development Authority and (the federal) Farm Service Agency have been good about extending terms and interest-only loans and those kind of things for those who are under financial stress. These factors are keeping farmers from exiting dairy at this time.
Vtdigger.org: So you think they’ll be able to hang on then for a while?
Allbee: Yes, for a while. Even those who are thinking about getting out will hang on for a while because of all those factors I just outlined.
Vtdigger.org: What is the price of milk right now?
A. It’s about $15 per hundredweight depending on where somebody is located. That’s still below the cost of production for some farmers. (The average cost of production is $17 to $18 per hundredweight, or the equivalent of 11.6 pounds of milk.)
Agri-Mark is estimating it will be in the high $16 to $17 per hundred weight range by July or August. Prices are rebounding, but as you know, there was so much equity loss over the last two years. The average dairy farmer lost more than $130,000 in equity. That’s going to take a long time (to pay off).
Vtdigger.org: Do you expect any people to go out this summer?
Allbee: We always have people go out in the summer and fall, so we do expect to see some, but I think at this stage, we don’t expect to see an exodus. In the worst-case scenario, I had said we could lose up to 200, but I think at this stage, we don’t see that number happening right now.
Vtdigger.org: How many farms do we have right now?
Allbee: 1,017. We’ve lost 50 farms over the last year. Right now it seems to have plateaued for a while.
Vtdigger.org: What farms are most vulnerable to bankruptcy? Are they large or small? Are they the farms in the most debt?
Allbee: It’s not by size. It’s basically by debt load. It could be a larger size as well as small. Those with the most debt are the most vulnerable.
Vtdigger.org: Is there anything else you would like to say about the general sustainability of dairy farms in Vermont?
Allbee: I would say for the time being (prospects) are more encouraging than they have been in the last several months.
We’ve been very eager to see changes in policy that better helps the Northeast farmers in each state in terms of pricing going forward. We’d like to see a floor (price), or some kind of decoupling of Class 1 milk prices from the other milk classes (2, 3 and 4), so we can take advantage of regional markets for fluid milk.
(The other classes of milk are sold at a much lower price for cheese, butter and powdered milk. Farmers are currently paid a lower, “blended” milk price for Class 1, or the highest quality milk that is bottled and sold for liquid consumption.)
The problem is that Class 3 and 4 pull the Class 1 price down because the farmers get a blended price (instead of a higher price for Class 1).
We’ve got over 60 million people within a day’s drive of our markets, and we’d like our farmers to take better advantage of that pricing. Consumers want to know where their food is coming from.
Vtdigger.org: Do you support some kind of growth management program for farmers?
Allbee: Whether you call it growth management or supply management, we support some sort of program that can better compress the cycles the dairy industry faces, which means some kind of management program that better controls the oversupply of milk in this country.
It only takes a 2 percent (oversupply) for the price to go down 20 percent to 30 percent.
We would like to see some kind of risk management program for dairy farmers going forward. We would like to see some better way to control the large price swings … so they’re not as long in duration and as steep.
We are looking to Dr. Mark Stephenson and Dr. Chuck Nicholson of Cal-Poly (in San Luis Obispo, Calif.) who have been hired to evaluate all these various proposals from Dairy Farmers Working Together, National Milk Producers Federation and the Holstein Association. They’ve been asked to analyze these proposals and to look at what is the impact on the price to dairy farmers.
We’re all looking to see what that analysis shows, so that we can get behind those proposals that are most beneficial to our dairy farmers.
(Dairy Farmers of America and Agri-Mark, along with the aforementioned groups, are sponsoring the project, Allbee said.)
Vtdigger.org: To get all those groups together to agree to a thorough-going study is a big deal, isn’t it?
Allbee: That’s a huge deal.
