Conglomerate dairy cooperative tactics are a threat to small family farms

A common scene in Yates County — the bucolic setting of a vibrant green pasture dotted by dairy cattle contentedly grazing after their morning milking — is being threatened, and along with it, the survival of the sustainable family dairy farm. Why? Because decades of changes in calculating milk prices are squeezing small producers out of the picture.

The price of milk is one of the most complicated economic factors in modern agriculture. In the 1920s, federal law allowed small, local dairy cooperatives (co-ops) to be formed. Member farmers bargained together with creameries and larger processors for a price they both could live with. Farm failures in The Great Depression and the collapse of farm production in some areas led to federal New Deal price controls to protect both farmers and food supplies across the nation.

However, that model of cooperation and control has been corrupted. Government deregulation efforts since the 1980s have gradually dismantled the protective market controls. And some cooperatives have used their protected status to grow and swallow their smaller colleagues. One, in particular, has become a literal corporate giant. Dairy Farmers of America Inc. (DFA) was formed in the late 90s by the merger of four Midwestern co-ops, later acquiring five farther afield, including, Valley of Virginia Milk Producers Association, California Cooperative Creamery, Black Hills Milk Producers, and Dairylea here in New York. In the 2010s, they acquired Kemps of St. Paul, Minn., and its subsidiaries from HP Hood; Oakhurst, and DairiConcepts; as well as Cumberland Dairy, a processor of ultra-pasteurized dairy products.

Their object has been corporate “vertical integration;” owning all aspects of dairy production from cow to table, with a massive increase in their control over prices. And this has upset the sustainability of generations of family-owned farms. Those small family farms are watching huge factory farms grow and prosper while they are unable to sell their milk and eventually lose their livelihood. Many are calling for the implementation of a system such as what Canada instituted for fair and reliable quotas and stable prices.

According to Pennsylvania dairyman and activist Jim VanDerlinde of DairyHack.com, the U.S. currently operates under five milk pricing tiers.

“These are not the classes of milk, these are unspoken tiers that no one talks about,” says Vanderlinde. “Everyone assumes we all play with the same rules and prices. It is easy to jump on the economies of scale bandwagon. I’m here to tell you that economies of scale start to lose their edge after 1,500 cows.” VanDerlinde explains:

• Tier 1 is what he refers to as the Cost Plus system. Only dairies around 4,000 cows and higher are in this bracket. “This is the reason you see new 5,000 cow dairies being built and not new 1,000 cow dairies,” says VanDerlinde. A representative from the milk processor will meet directly with the farms over 4,000 cows monthly or even weekly. They discuss what their actual costs are this month and in the immediate future. The plant will have an idea of what milk should cost them, and the dairy will have an exact figure of what it is costing them. The plant then pays the dairy what it needs to operate, and if that is a favorable number for the plant, the “cost plus” applies. “That results in a tidy bonus per hundredweight,” says VanDerlinde. “If the dairy is high in their costs, the plant will try to identify why and see if that is a short or long-term problem and they will build a plan around it. This is the plant working directly with individual farms and setting their own price. Banks know about this and require it on big deals. Large operators know about this. The rest of us are in the dark,” says VanDerlinde.

• Tier 2 is for farms just under 4,000 cows. Typically 2,500-4,000 cows get weekly cash advances on their milk check instead of a bi-monthly advance and final check method, improving both the dairy’s cash flow and the milk plant’s cash flow. These farms are also in a better position to negotiate volume and hauling bonuses or subsidies, “but they are not quite at the level of dictating the pay price like the cost plus dairies,” says VanDerlinde.

• Tier 3 are negotiable dairies. “These are big fish, small pond type places that can rock the boat a little to get what they what,” says VanDerlinde. “They can’t make outlandish demands, but being a bigger dairy in an area of many small dairies, (they) can do things like asking for more base when other farms just take what is given to them.” The size of the negotiable dairy will vary depending on area and location.

• Tier 4 are farms that accept a market order price and an advance check early in the month, and then a final check later. “Tier 4 is everybody else that looks up in disbelief at how the 5,000 cow barns are being built and the 80 cow barns are dinosaurs,” says VanDerlinde. “If you are in tier 4, you are not alone. It’s not your fault, no one told you other ways existed until now.”

• Tier 5 is the lowest. In the Northeast, these are waitlisted dairies that can face ruin. “This is hitting organic hard and even the conventional side,” says VanDerlinde. “There are some farmsteads being blackballed that processors don’t want milk from these farms no matter who owns them.” Logistical or quality issues may be factors. “Farms that want to get on the organic truck but are being told to wait, or ‘We will call you when we need you.’ That is a lonely place to be. Guys can’t get financing without first securing a milk market, and milk markets don’t seem to want milk from new producers. That’s a tough spot,” says VanDerlinde.

Vanderlinde is not surprised if even dairy farmers don’t understand this tiered system. “They exist but they are not talked about openly and publicly. A base system will never work here because the rules are not applied evenly. We already operate in a slanted environment.”