American farmers are among the most productive in the world. In fact, production has been and continues to be one of our biggest problems. For the past two centuries, American farmers have been plagued with the periods of massive overproduction resulting in both brilliant and bizarre solutions. Today, another overproduction problem is creating a whole new set of outlandish solutions to deal with the problem. As a public service, I would like to offer one more.
The American dairy industry is attempting to deal with its continuous cycle of economic boom and bust. Several times over the past few decades, US milk prices have plunged to extremely low levels resulting in widespread financial disaster for many family dairy operations. These have been followed by times of extremely high dairy prices, and consumers have bawled louder than newborn calf when retail milk prices have reached $5 a gallon.
This situation is a result of the dairy farmers prodigious ability to produce milk. US dairy farmers and their cows are capable of turning out far more milk, cheese, yogurt, butter, ice cream and other dairy products than the market can absorb. Hence, this has led to the current system of government price controls designed to keep dairy process high enough to keep dairy producers in business while keeping retail dairy prices low enough to satisfy consumers. The problem is dairy producers have gotten so efficient and so productive that the program does not work anymore.
During the recent Senate Farm Bill debate, one Senator made the statement that, if dairy production increases by 2%, the industry will collapse in financial ruin. If this is true, that means that just a few extra squirts from each dairy cow would spell bankruptcy for the US dairy sector. Two different approaches are being considered for the new Farm Bill. One would put the government in firm control of production levels; the other would provide a financial safety net similar to the revenue protection of crop insurance. (I ask my dairy friends to pardon me for the oversimplification of these proposals.) As is typical in dairy policy debates, the industry is divided on which approach to take.
Rather than arguing the merits of either plan, I would like to suggest a different approach. Let’s increase the demand for dairy products beyond the industry’s ability to satisfy it. Demand is a self-regulating driver, it automatically increases or decreases production depending on the level of supply. Furthermore, it allows individuals to make their own production decisions rather than the government making them.
How to do this has already been demonstrated by corn and soybean farmers. We just have to figure out how to make a renewable fuel out of dairy products. If we could adjust a few biorefineries to make ethanol or soy biodiesel out of milk and cheese, we would have a new source of consistent demand for dairy products. We already have a system of collection and transportation for milk; co-ops would just start making some deliveries to the biorefinery as well as the dairy.
With dairy farmers’ ability to ramp up production, there would be no impact on the price of dairy products to consumers. In addition, ethanol production from corn produces a byproduct than is a excellent feed source (DDGS) for dairy cows, so a wonderful synergistic loop is created that would benefit dairy farmers and ethanol producers.
Dairy farmers like to use RBST to increase production, but consumers have rejected this technology for milk production. Milk destined for energy production could be produced with this safe and effective technology while keeping it out of the food supply. Like corn and soybeans, there already exists a futures market for dairy products, so commercial users like biorefineries would have a risk management tool to hedge future supply. The USDA also has a program in place to help fund the construction of digesters at dairy farmer to create energy from dairy farm waste products.
And all of this would happen without government price and production controls, which is why it will never happen. While motorists grumble about $4 gasoline this summer, they are still in the fossil fuel mindset. The idea that our nation’s bioproduction sector (agriculture) could be the key to our energy self-sufficiency, is an idea whose time has not yet come. Hopefully sometime before the last oil well runs dry and the last remaining big oil company files for bankruptcy, our nation will wake up and realize that our amazing agricultural system is capable of producing both food and fuel.
By Gary Truitt