A collapse in milk prices has wiped away the profits of dairy farmers, driving many out of business while forcing others to slaughter their herds or dump milk on the ground in protest. But nine months after prices began tumbling on the farm, consumers aren't seeing the full benefits of the crash at the checkout counter.
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Price disparities are a fact of life both for farmers and anyone who shops at a supermarket, but the nature of milk — how it's stored, priced and sold around the world — makes the gap all the more dramatic. In fact, the price that farmers get has been wildly volatile for years, creating a succession of booms and busts felt from pastures to the grocery store.
Commodity prices are always volatile, so that's not much of a surprise. What's different this time is that the excess of supply isn't leading to retail price declines. Perhaps Peak Oil is pushing up the cost of production to the point where dairy farmers require a permanent price floor to be viable. Any price below that floor makes their entire industry unprofitable. Organic milk producers should be in less trouble, but even they will be impacted by rising fuel costs for transportation. Milk is a renewable resource, but the petroleum used in its production isn't.
This one's not a conspiracy. There's no OPEC-like cartel for the milk industry that can force down production to keep prices up. Note how the article gently mentions the ineffectiveness of the USDA's pricing programs; they are unable to achieve their intended goal of keeping small producers in business. The USDA is forced to meddle in what should be a free market because of the political influence of dairy farmer constituencies.
Nota bene: Anthony J. Alfidi holds no investment interest in any dairy producer or distributor. He does drink milk (usually organic) a few times a week and also enjoys other dairy products such as cheese and ice cream.
