There's a gap between what you pay for dairy and what farmers get for their milk
Rick Barrett, Milwaukee Journal Sentinel
Updated 6 min read
Tina Hinchley milks around 250 cows and uses robots at Hinchley's Dairy Farm in Cambridge, Wis.
Dairy farmer Tina Hinchley is sometimes asked why milk prices remain high in the grocery store when the amount farmers get for the product falls for months.
One reason is that every time milk changes hands, there's a cost. Truckers, processing plants, marketers and retailers all have to be paid. Farmers get around 40% of the retail price of a gallon of milk and the rest goes for other expenses.
“The price of that milk is going to go up and up and up,” said Hinchley, whose family runs a 250-cow dairy in Cambridge, about 25 miles east of Madison.
However, some say neither farmers nor consumers have gotten a fair deal.
For example, June retail prices for beverage whole milk in the Chicago area rose to $1.33 per gallon above the national average of 30 major cities, although farmers in the Upper Midwest received the lowest price in the nation for producing that milk, according to The Milkweed, a Brooklyn, Wis., dairy industry publication.
Tina Hinchley milks around 250 cows and uses robots at Hinchley's Dairy Farm in Cambridge, Wis.
“Blatant retail price gouging was occurring, while simultaneously, hundreds of trailers of surplus milk were dumped in the region this spring. Farmers’ net milk prices were sinking to levels akin to the early 1980s,” said Milkweed publisher Peter Hardin.
Truckloads of fresh farm milk were flushed down the drain into Milwaukee’s sewer system as dairy plants around the state, filled to the brim, couldn’t accept more of it.
There have been reports of milk dumped in livestock manure pits.
“We’ve sunk to very ugly times on the farm and in the industry,” Hardin said.
Farmers rely on price insurance to offset losses
For many farmers, the crisis has been a marked reversal of better times.
A year ago, the price they received for their milk reached a record high of more than $25 per hundred pounds, around 8.6 gallons, which encouraged many to ramp up production. But as the market was flooded with milk, the price sank to less than $14, one of the lowest levels in years.
Meanwhile, farmers were slammed with higher costs for everything from fertilizer to tractor parts. A drought that gripped much of the Upper Midwest hurt the crops used for livestock feed. As a result, this winter there could be feed shortages.
“Mother Nature isn’t always working with us,” Hinchley said.
Tina Hinchley uses milking robots that automate the process and tracks important health statistics from the cow at Hinchley's Dairy Farm in Cambridge, Wis.
For various reasons, more than 400 Wisconsin dairy farms have quit the business in the last 12 months. Wisconsin now has fewer than 6,000 dairy farms, the lowest on record.
One thing that's kept many farms afloat has been a government program called "Dairy Margin Coverage" that protects some of a farm's profit margin when milk prices plummet.
The protection is triggered when the difference between the national price of milk and the average cost of livestock feed falls below a certain level. It’s a voluntary program, but like other insurance, requires participants to pay premiums.
Many farmers chose not to sign up for Dairy Margin Coverage because a few years ago economists predicted that strong market conditions would “render the program pretty moot,” Hardin said.
Then the global pandemic “threw those predictions out the window.”
There's less competition in the marketplace
Dairy farmer Sarah Lloyd says consolidation in the industry has allowed processors, distributors, and retailers to keep consumer prices high even as farmers are paid less.
“There’s been reduced competition in the marketplace,” said Lloyd, who's worked as a food systems scientist for the University of Wisconsin-Madison Center for Integrated Agricultural Systems.
““Farmers don’t have the power to push back…and consumers are also getting a raw deal,” she said.
She and her husband, Nels Nelson, milk 450 cows on their farm near Wisconsin Dells. Now, with some farms having nearly 10,000 cows, “we’re an ant,” Lloyd said.
She would like the U.S. to adopt a milk supply management system, like what Canada has, to keep markets from buckling under overproduction and to ensure that farmers receive a fair, stable price.
“The federal government is already very involved in milk pricing, so we need a federal response to the crisis,” Lloyd said.
The route that milk takes from the farm to the grocery store is fairly straightforward, but the prices farmers receive are based on a complicated patchwork system of formulas and rules dating back to the 1930s.
Supporters of Canada’s system say it levels out the highs and lows of milk prices that have hammered farmers in other countries for years, allowing them to make long-term investments in their operations.
But supply management only works if everyone participates, said Michael Slattery, a crops farmer near Manitowoc who previously worked in international banking.
It could be difficult to implement.
"The type of capitalism we have in this country, which is Laissez-faire capitalism, means you can do whatever you want," Slattery said.
Critics say Canada's system results in consumers paying higher prices for dairy products.
It’s also more difficult for someone to get started in farming in Canada.
For instance, every Canadian dairy farm has a certain amount of market share — called quota — that determines how much milk it can produce. Farmers can buy and sell quota, though it's expensive, and the amount available is limited.
“There certainly are a lot of drawbacks to it,” said Brody Stapel, a dairy farmer from Cedar Grove, Wisconsin, and president of Edge Dairy Farmer Cooperative.
Stapel said he would favor policy reform that puts more emphasis on regional, rather than national, milk pricing.
He said many farmers use marketing tools to lock in prices and smooth out highs and lows. They're also expanding their operations for increased efficiencies and economies of scale.
“Dairy farming is hard, especially when you’re milking a low number of cows and can’t afford to hire labor,” Stapel said. “It’s not necessarily attractive to the next generation.”
Farm milk prices will recover, but by how much?
Sales of beverage milk rise in the fall when schools open. Butter and cheese sales typically increase over the fall and winter holidays, which is good for Wisconsin dairy farmers because most of their milk goes into cheese.
The recent "ruinous" farm-milk prices will eventually subside, according to Hardin.
"But how high the bounce-back will be remains to be seen," he said.
The Hinchley farm started in 1958 with just 11 cows. Tina married into the family 27 years ago and soon after added Hinchley’s Dairy Farm Tours. Visitors from around the world have come to the farm to pet and learn about cows.
Revenue from farm tours and other side businesses helps when profits from milking cows evaporate.
Hinchley is a board member of the state Department of Agriculture, Trade and Consumer Protection and a passionate advocate for dairy products.
“Farmers are hoping for a better price,” she said. “And consumers need to be confident that when they go to the grocery store, regardless of the brand of milk they buy, they're getting a quality product."
