Vermont’s dairy farms: Which way forward?

by C.B. Hall, Vermont Business Magazine Each year, the people who study such things inform us that our state’s dairy farms, so emblematic of what makes Vermont, Vermont, continue to dwindle in number. According to the state’s Agency for Farms, Food and Markets, Vermont had 973 cow dairy farms in 2012. Five years later, there were 796 — 18% fewer. By the first quarter of this year, the number stood at 564, a further decline of 29%.

Thirty-eight farms — one or two a week — disappeared in the seven months between May and December 2020, following the onset of the COVID-19 pandemic, which occasioned a major decline in demand as schools and restaurants shut down. In three months, the average price that Vermont’s dairy farmers received for their product through the federal milk market system plummeted 27%, to $12.82 per hundredweight of raw milk, according to the USDA’s Agricultural Marketing Service.

Among other impacts, the price collapse forced the closing of Rutland’s Thomas Dairy in September 2020, one of the few remaining local handlers selling fluid milk in the state.

In an interview for this article, Vermont Secretary of Agriculture, Food and Markets Anson Tebbetts said the pandemic “certainly played a significant role in the loss of some of our farms, because of the volatility in where the market was headed.”

Photo: Anson Tebbetts. Courtesy photo.

The sector has nevertheless demonstrated some resiliency. By March of this year, the same average federal price had almost doubled, to $24.08, having climbed for seven months straight. But that spike in prices did nothing, of course, for the farmers who had given up when prices fell so far below production costs during the pandemic.

One extrapolation of federal statistics for 2020 — the most recent figures available — put the value of milk produced in Vermont at only 82% of production costs. Diane Bothfeld, AAFM’s director of administrative services and dairy policy, told VermontBiz that, over the last five years, milk checks have “frequently” fallen short of defraying those costs.

So, given those persistent shortfalls, is there still a means of saving the mostly small dairy farms that have stood as something akin to Green Mountain State’s trademark for so many generations?

Supply Management: Maybe Yes, Maybe No

VermontBiz investigated several possible answers to that question, beginning with supply management, for which Canada furnishes a nearby reference point.

Under the Dominion’s supply-management system, quotas for production of milk are determined and overseen by a Canadian Milk Supply Management Committee, created through a federal-provincial agreement.

Chantal Paul of the Canadian Dairy Commission said that demand is evaluated monthly, and the national quotas are adjusted accordingly. 

Measures are in place to ensure that the provinces, producers and producer pools respect their allocated quotas. Provincial milk boards exercise price-setting authority for all milk produced in their territory, but over the years prices have been largely harmonized among the provinces.

The aim of the overall scheme is “to provide efficient producers with fair returns and to provide Canadian consumers with an adequate supply of the product at reasonable prices,” in the words of the Ontario Ministry of Agriculture, Food and Rural Affairs’ website.

The Canadian system requires the farmer to “buy quota” — essentially, to purchase a license to sell each cow’s milk. Buying a cow thus resembles buying a tavern: You buy the liquor license along with all the physical assets.

In eastern Quebec, that quota currently sells for about $24,000 Canadian per cow, according to Paul. It’s a lot, but quota-leasing programs exist to spread out the financial load, and, moreover, the price of the milk sold reflects the quota cost along with all the other expenses of production.

Reflecting this higher cost structure, the price for milk north of the border dwarfs that in the United States: In equalized terms, the retail price of milk as of February was about 30% higher in Canada than in the States.

Whatever its pluses and minuses, Paul stated, the Canadian system has not stopped the country’s dairy farms from dwindling in number.

The supply-management concept has been tested in the United States, and found lacking, in private quota-based programs run by Dairy Farmers of America and Agri-Mark, the two cooperatives that handle most of the cow’s milk produced in Vermont.

The programs are based on the federally mandated milk-market price, which is ultimately governed by supply and demand for dairy products on the national — and international — market.

Photo: Prices at the grocery store. Courtesy photo.

University of Vermont agronomist Heather Darby said the private supply-management initiative “was not welcomed.”

“What happened is, a bunch of small farms sold their quotas to larger farms and got out. Larger farms started basically encroaching on the smaller ones because they wanted to produce more milk” in response to low prices, thus maintaining or even adding to the glut in supply that accounts for the low prices to begin with.

AAFM’s Bothfeld described this sort of supply management as “challenging, because it’s regional” — in this case, limited to the Northeast.

In her view, a problem also arises from the minimal price for the excess production, which is hard for cooperatives to sell on the spot market. They can truck it out of the glutted Northeast to Ohio, say, but at a fire-sale price that drives the Ohio market down and leaves very little for the producer in Vermont after the costs of transportation, among other things, are reckoned in.

With this system, “making that extra milk doesn’t make extra money,” Bothfeld said.

That means that farmers tend to exceed their quotas in any warm-weather month and fall short of them in the winter when production slips.

In both cases, they wind up getting less money than they might if they were working with a single annual quota, or base. Under that concept, elaborated by a working group at the Vermont Milk Commission, any excess, over-base production in a quarter would be subject to a deduction from the basic, established price; but at year’s end, the volumes produced through the year would be totaled and measured against the 12-month quota.

The deductions made during the year systemwide “would be pooled and redistributed … to farms that remained at or below their annual base,” in the words of a 2021 report from Vermont’s Department of Financial Regulation. 

The hoped-for result would be to get rid of the seemingly unending glut of supply that keeps prices low.

Organic Valley, the Wisconsin-based cooperative that handles the bulk of Vermont’s organic milk, instituted a method along these lines in 2009 to manage its supply, and with some success. According to the DFR report, the program “allowed Organic Valley to maintain adequate prices for their farmers and resulted in increased utilization, reduced inventory and increased milk quality. Elsewhere in the sector, however, the concept remains mostly just that — a concept.

Bothfeld said the idea would only reach its potential if it were managed nationally. Both Darby and Maddie Kempner, policy director at the Northeast Organic Farming Association of Vermont, agreed. Kempner added that “the supply system is really globalized at this point,” adding to the possibilities for market distortions.

In other words, just as a surplus in the Northeast can drive down prices in Ohio, surplus dairy products entering from Canada can drive down prices in the United States.

Given the flaws in a merely regional system, VermontBiz asked Bothfeld if there was any hope for launching a national supply-management program through the next federal farm bill, which will likely take effect in 2023.

“No, not really,” she said. Amid cries of socialism from so many members of Congress, “it would be quite a feat.”

Diversification

Not all is doom and gloom.

While Vermont’s dairy farms have decreased in number over the last 10 years — even if one includes the few dozen goat and sheep operations in addition to the cow farms — the number of milk-processing facilities has risen over that same period, from 83 to 158, as producers of cheese, yogurt, kefir and the like have continued to spring up around the state.

That can be a matter of vertical integration on the farm, or off-farm processors who pay a premium for the high-quality milk they want.

In recent decades, these new value-added ventures have included Westminster’s Vermont Shepherd, which makes cheeses primarily from its own sheep’s milk; Websterville’s Vermont Creamery, which generates a variety of products from local cow and goat milk; and Westfield’s Butterworks Farm, which sells a range of organic products.

Photo: Vermont cheeses. Courtesy photo.

But while the niche and specialty markets might bring farmers a better return on what comes out of the milking…