California dairy farmers look to Canada to help ease their economic struggle

Analysis & Commentary

By Victor Martino

California dairy farmers are looking to Canada as a possible solution to their economic struggles amid what has become a depressed industry as milk demand sours and the prices paid them are below the current cost of production.

This month the California Dairy Campaign (CDC), a statewide organization of family dairy farmers, held a symposium featuring dairy farmers from Canada at its annual meeting.

At the meeting the Canadian dairy farmers outlined their system in which they balance milk supply with profitable demand.

Unlike here in the U.S., the dairy farming industry in Canada operates under what is known as supply management, which ensures dairy farmers receive a fair return on their capital and labor costs based on marketplace principals.

Milk prices paid to dairy farmers have been well below production costs for a number of years now in California and other U.S. dairy farming states, according to CDC executive director Lynn McBride. Milk prices have dropped to $14 per hundredweight, compared to the current $25 per hundredweight in Canada, she says.

“It’s [the depressed payments to dairy farmers] creating a crisis not only here in California, but also across the entire country,” McBride says.

The drop in payments to dairy farmers comes at a time when demand for milk is dropping in the U.S. Many consumers have switched, for example, to plant-based milk alternatives like Almond Milk, which has seen sales growth of 250 percent over the last 5 years, according to data from food industry research firm Nielsen.

Dairy farmers throughout California have either been selling their dairies or going out of business. Over the last 50 years the Golden State has gone from having over 20,000 dairies, most family-owned and operated, to just under 2,000 today, according to the CDC, which thinks a system more like the one in Canada might reverse this trend and improve the economic conditions for California dairymen and dairywomen.

“Canadian dairy farmers are attempting to throw us a lifeline by explaining their system and how it could offer solutions to the crisis that dairy farmers across the U.S. are facing,” McBride told dairy farmers at the annual meeting. “Some people have been aware of the Canadian system for years, but I think they’re taking a fresh look at it and what’s working up there,” she added.

In addition to ensuring fair returns, McBride says, “supply management [the Canadian system] also provides processors with a stable supply of milk so they can properly plan production, and also makes sure consumers have a consistent market of milk and milk products of the highest, safest quality at a fair price.”

In order to achieve what McBride describes above, Canadian dairy farmers work and act as a team or unit, working together as partners to negotiate prices and adjust milk production to meet consumer demand. The opposite is the case in the U.S., where dairy farmers have prices set by the federal government and are lone actors when it comes to the process, rather than working together with fellow dairy farmers like in Canada.

The CDC wants the state and federal government to use the Canadian model as a blueprint to make policy changes here in the U.S.

Here the federal government sets the minimum milk price paid to farmers based on a weekly survey of what consumers pay for dairy products like butter and cheese. The formula is tilted heavily on U.S. exports.

In contrast, Canada premises its system on ensuring a domestic dairy market rather than relying so much on exports.

McBride and others argue that the U.S. system as it is creates too much uncertainty and is far to tilted on exports.

“Exports are an important piece of the overall dairy market, certainly, but we can’t afford to have the fate of our dairy farmers rest on it.” she says.

Having analyzed the current U.S. system, I agree with the CDC that change is needed. I also agree that Canada’s supply management system probably holds the best promise for our dairy farmers in terms of a model to base a new federal policy on.

However, in addition to a supply-side solution which this would be, California dairy farmers also need to focus more on the realities of the current consumer market. For example, value-added dairy products like butter and yogurt are experiencing sales growth in the U.S., as is premium non-processed cheese. In contrast, fluid milk sales are flat to slightly negative in growth. This is important information for dairy farmers and processors because meeting consumer demand is at least 50 percent of the solution to the dairy industry’s problems.

The reality today is there’s an oversupply of fluid milk and processed cheese. The federal government has been pouring millions of gallons of the former down the drain and is storing hundreds of millions of pounds of the latter in warehouses throughout the country.

Getting dairy back on track economically is going to require more market savvy on the part of dairy processors and dairy farmers, along with adopting a supply system similar to Canada’s, in my analysis.

For example, many dairy farmers in California are now producing their own premium and organic milk, value-added dairy products and premium cheese, selling both through retail stores and direct-to-consumers. Many of these dairy farm families, such as Burroughs Family Farms and Fiscalini Cheese Co., both in the Central Valley, and Alexandre Family Farms in Crescent City, to name just three, are doing very well, having taken control of the marketing and sales function as well as creating dairy products consumers demand. This isn’t a solution for every California dairy farmer but it’s one way to improve the business on the demand side.

California dairy farmers are struggling. They need help.

“Low milk prices have caused such unprecedented loss that they [California dairy farmers] either want to go out of business or they’re not sure how much longer they can hang on,” says the CDC’s McBride. “These are multi-generational dairy farms who have been efficient and successful, but because our pricing is all out of whack, it’s jeopardizing their future.”

The CDC and the dairy farmers who comprise its membership believe the Canadian system holds the best hope, according to McBride.

“There’s a profit being made and Canadian dairy farmers have found a way to capture that profit,” she says. “We think we need to figure out a way to replicate that here.”

I agree with the CDC on the supply side. The Canadian system holds the most hope for California dairy farmers at present. But I also think dairy farmers and the industry as a whole must put more of an emphasis on the demand side as well, like the family dairy farmers mentioned above and others are now doing.

We need a supply plus demand solution to the struggle California dairy farmers are currently experiencing.

The time to act is now, both legislatively on the supply side and from a marketing standpoint on the demand side.