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It is good that my comments about dairy prices paid to producers as opposed to those paid by the retail consumer resulted in a discussion. Here are some more facts. From an AgWeb story: "The February California Class I prices are giving an indication of what will be seen in the federal orders. The price was announced at $11.27 in the North and $11.55 in the South. This was a decrease of $6.15 and $6.14 respectively and the lowest prices since 1979." A year ago the producer price was around $20. The last round of retailer milk price increases last summer were blamed on the cost of fuel. Depending upon the region of the country that was in the $4.00 range for gasoline and in the $4.50 - $5.00 range for diesel. That has now dropped dramatically, with gasoline in the $2.00 range. Labor costs have essentially been flat with the decline in the economy. My use of the cost of a four pound carton of dried milk at Costco is more evidence of a problem than "one store in one area," since the price is the same in Costco stores hundreds of miles apart. I grew up with an agricultural background and have lived on dairy farms and researched milk marketing and processing. Part of my remarks have to do with what is happening to producers in relation to other parts of the system. The producer takes on most of the risk - unpredictable prices received as well as input costs, the time, expense, and risks of building a herd and maintaining it, including breeding costs and vets bills, extracting and cooling and holding milk, etc. Meanwhile the processor has more control over their costs and has the product for relatively only a few hours. For the retailer milk is only one commodity among many and only holds the finished product until it is sold, and also has much more control over the process than the producer. The producer pricing situation can be influenced by the USDA. Confronted by lower prices, about all the producer can do is cull cows in which they have a lot of capital invested. If culling reduces supply, I am willing to bet that retail prices will rise quickly out of proportion to the decline in supply.
First, some farmers are selling raw milk. Second, I don't really think all consumers want raw milk. I'd rather be safe and drink pasteurized milk... Also, many people do NOT want whole milk - every year sales have been growing for skim milk and dropping for whole. I don't see how agriculture is Marxist at all. When supply is high, we take price cuts, and when demand is good we see price increases - its free market. That's why dairy farmers are struggling now - prices were good caused too much milk to be produced for the demand destroying prices (its not the only reason why prices dropped, but it is one of them). I would argue that agriculture in America is more free market than any where else in the world.
To Anon 10:18 PM: I tend to agree, I don't feel bad for western dairies and Texas dairies - but I do feel bad for the small Northeastern farmers who have been farming the same ground for generations.
I agree with Jim. Great Article.