Farms and Cows go Bankrupt as Land-O-Lakes Reports Record Profits

Chad Dechow
Associate Professor, Dairy Cattle Genetics
Department of Dairy and Animal Science
The Pennsylvania State University

Land O’Lakes reported record breaking profits in 2009 Deans Foods also had a great year. If you are a farmer or a consumer of dairy products, I’ll bet you are just thrilled. The price paid to dairy farmers in 2009 was abysmal. Nearly all dairy farmers lost money in 2009 and many have been put out of business. The situation was so bad that the federal government bailed out the dairy industry to the tune of $350 million in emergency funding part way through 2009.

The record low prices paid to dairy farms did not result in record low store prices. A gallon of whole-milk in the State College, PA area was right around $4 for most of 2009 (which is probably $0.50 more than you would pay at your local grocery store). Of that, about $1 made its way back to the farm.   That’s $1 per gallon to feed our cows and calves, provide them with clean and comfortable bedding, pay our veterinarian expenses, harvest crops, keep the barn clean, run the milking parlor, maintain the pasture, and do the countless other jobs that running a farm requires. Cows can’t do this alone, so someone needs to be paid to do the work.

The other $3? Haul milk from the farm to the creamery, heat the milk to 161 °F degrees for 15 seconds (to pasteurize it), pour it into a bottle and drive it to the store1. The price differential is even more shocking for the $2.75 ice cream cones sold locally.  About $0.15 made it back to the farm2. The disparity between store milk prices and farm prices has been increasing for decades.

Grocery stores do well with dairy products. It was recently estimated that the dairy case takes up 3% of the average store’s space, but returns 19% of the profits3. In other words, you are overcharged for dairy products in order to promote cheap food elsewhere.

Cheap food is produced at a cost to somebody, and in this country, much of that cost is born by the cow and the farmer who manages her

Bennet Cassell, Hoard’s Dairyman, February 25, 2010

Farmers and consumers aren’t the only losers in this game. How can we possibly provide for all of a cow’s needs when farmers are paid so poorly for their efforts? There is good evidence that on-farm cow mortality rates have risen over the last two decades – surely higher death rates suggest that the efficiencies forced on farmers are not helping their cows. I understand that folks have the right to make a profit, but doesn’t that right come with an obligation toward the farms and cows that provide our milk? The public may not know everything that happens on the farm, but they are increasingly uncomfortable with changes to animal agriculture and that is an issue that Land O’Lakes is all too familiar with.

If we are going to have our meats and other animal products, there are natural costs to obtaining them, defined by the duties of animal husbandry and of veterinary ethics.

Matthew Scully. The American Conservative, May 23, 2005.

Perhaps it’s time for the dairy industry to have a serious discussion about the direction of our industry. Our family dairy farms keep going out of business, not because people no longer want to farm, but because they are bankrupt. The farms that go under are consolidated, and former farm owners are effectively replaced with immigrant laborers. This transition is not good for our rural communities and limits opportunities for young people who want to farm. Meanwhile, our cows die more frequently and at younger ages. Taxpayers are left to foot the tax bill required to maintain this broken system. None of this is “efficient” or “progressive”. It’s easy to place the blame at the feet of “factory farming”, but really, what other choice do those that want to continue farming have? Sell the farm that’s been in their family for decades (or even centuries) and abandon a passion to farm that’s been in their blood since childhood?

We must give farmers more control over their price, or at least tie farm prices directly to the store price. If we’re worried about fair farm prices creating an oversupply of milk, then tie farm price to the store price for a farm’s first 4 million pounds of milk and allow those that want the opportunity to operate a larger business bear the risk of doing so.

Record profits? Wonderful, but did the prices the farmer was paid reflect the “natural costs to obtaining them, defined by the duties of animal husbandry and of veterinary ethics”? How many family farms need to go under and cows need to die before we acknowledge that there is a problem?

1The mailbox farm price of 100 pounds of milk was $12.49 for January through November of 2009 and there are approximately 11.6 gallons per 100 pounds of milk. Numbers were rounded to the nearest whole dollar

2It takes about 12 lbs of milk to make 1 gallon of ice cream (or 8 gallons for 100 pounds of milk). It was assumed that there were 11 cones per gallon (3 scoops at 4 ounces each), or 88 cones per 100 pounds of milk. $12.49/88 = $0.14.

3Dairy Profit Weekly, February 15, 2010

2 thoughts on “Farms and Cows go Bankrupt as Land-O-Lakes Reports Record Profits

  1. i have been following this dairy mayhem for months now, i just started buying at a wholesale store eliminating the middle all together. what else can i do? i am afraid dairy farmers r extinct, what THE HAY is going on? i come from an Italian family, we cook ONLY with butter and cream. it is precious, it is marvelous, not some ordinary product to fool consumers!!! THE VERY EXISTENCE OF MAMMALS DEPENDS ON DAIRY. WHAT CAN I DO???

  2. Nice job!
    How do we let consumers know this? I think the LBS and the gallon thing, may confuse people make it all gallons people know, 1 gallon of milk not how many lbs are in a gallon of milk.

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