Why Mitch and Mike Disagree on Supply Management
Nov 30, 2012
An Idaho cheese manufacturer and a dairy producer diverge over free market and market reality. The dilemma is deciding who is more right.
I had the opportunity to emcee the Wisconsin Dairy Business Association’s (DBA) 13th annual Business Conference in Madison last week. Along with getting to shake Gov. Scott Walker’s hand, I also moderated a panel of out-of-state dairy producers.
Supply management was the first question raised from the audience. Mitch Davis responded first. Mitch is part of the Davis family who owns Davisco Foods, Intl., which has cheese plants in Minnesota, South Dakota and Idaho. With milk supply short in Minnesota, Mitch serves as general manager of Davis Family Dairies, which currently milks 6,000 Jerseys and will soon add another 3,500. The Davis Family is only one of two operations that have added significant cow numbers in the last few years in Minnesota.
Mitch is a free marketer to the center of his marrow. He argues: Dairy farmers do best when they are free to decide for themselves how much milk to produce. It almost seems ludicrous to impose supply restrictions on American farmers as they try to compete in a growing global dairy market. There’s growing demand, for example, for child infant formula in second- and third-world economies. Restricting American production will limit our ability to serve these emerging markets.
In principal, Mike Roth agrees with Mitch. Mike and his family emigrated from Washington in 1995 to Jerome, Idaho, bringing their 1,200 cows with them. No wall flowers when it comes to entrepreneurship and expansion, they now milk 11,000 Holsteins and 600 Jerseys on three dairies. Mike has also been on the board of the Idaho Dairymen’s Association, and up until last month, served as its president for three years.
But Mike and his fellow Idaho producers have lived the incredible challenge of a cheese-making industry that is full to the vat brim with absolutely no incentive to bid for milk. Over the past 20 years, Idaho milk prices have trailed the U.S. All-Milk average by $1/cwt. on average, and sometimes by as much as $2. This year has been particularly brutal—Mike estimates 15 to 20 Idaho dairy producers have left the industry—nearly double that of last year’s exits.
The one saving grace has been Chobani’s new yogurt plant in Twin Falls. It is huge—“as big as a nuclear power plant,” Mike says—and will eventually require the milk of 100,000 cows. In fact, a tanker load of Mike’s milk was the first to be used in the Chobani plant as it begins plant start-up. The plant has already had spillover effects. Cheese makers, including Davisco, have offered better prices and long-term contracts to their current farmer patrons to lock up milk supplies.
Mitch argues that this is just the competitive, free market at work. He’s right, of course. No cheese maker is going to bid a nickel more for milk than his competitor, and he won’t do it until the market demands that he does. That’s just business.
Mike argues that with today’s feed, fuel and labor costs, the only option to get a break-even or better price is supply management. That’s particularly true when much of the rest of the country is in regulated (higher priced) markets. That’s why the Idaho Dairymen’s Association signed on to Dairy Security Act, which contains a market stabilization program that kicks in during periods of low margins.
In the end, both Mitch and Mike are right. The dilemma is deciding who is more right. I lean toward Mitch—but I fully appreciate Mike’s argument.
You can read more about Idaho’s competitive dairy market position here: Idaho's Dairy Dilemma and The Competitive Position of the Idaho Dairy Industry.