*This story originally appeared in The Budget’s April 4, 2018, Local Edition.
By Beverly Keller
Rock-bottom prices are being paid to farmers for raw milk right now across the United States.
In many cases, $16 per hundredweight (approximately nine gallons of raw milk) doesn’t begin to cover the cost to create it from feeding the cow to milking and storage. “All farmers are feeling this impact,” explained Dianne Shoemaker, Ohio State University field specialist for dairy product economies. “It is a bleak picture for the next 12 months.”
In Europe, a literal lake of milk is being held in hopes of raising the price paid to farmers. In fact, Brussels purchased a substantial stockpile of milk in hopes of raising the price, or at least stabilizing it with no impact. Brussels has, in fact, been buying up milk since 2015. In addition, the European Commission has purchased 380,000 metric tons of skim milk powder since 2015 with public money and stockpiled it in warehouses across Europe. To put it in perspective, 380,000 metric tons is what the country of France produced in a single year.
Chairman of the German Dairy Association Romuald Schaber explained that the powder is anything but powerful for Europe right now. “The powder is the problem,” he stated in an address to German leaders in early January. “It’s the Sword of Damocles hanging over us all.”
When milk farmers were floundering in 2015, Europe’s Agriculture Commissioner Phil Hogan stepped in. The Agriculture Commission handed out over $1 billion in aid through several programs to farmers because of what was described as “the perfect storm.” Milk production quotas were eliminated at the same time as Russia began a ban on imports of fresh European foods. The once stable market crumbled as milk flooded the area and had nowhere to go.
Of that aid package, over $640 million was used to purchase skim milk powder at a fixed price from farmers. This purchase may have given farmers cash at the time, but it lowered the value of powdered skim milk from 1,720 pounds per metric ton in January 2014 to 1,400 pounds in January 2018.
With large stockpiles and excess milk in the market, Europe is no longer importing US milk or products as it once did.
Add into the equation that Americans drink less milk than they did just three years ago, a trend that is expected to continue through 2020. The trend is expected to level out at a yearly consumption of 10 gallons per person in the United States, down from 29 gallons per person in the mid-1980s.
Mintel, a market research firm, noted that it is non-dairy milk consumption that is on the rise. “Growth of non-dairy milk will continue as consumers perceive it as a better-for-you alternative to dairy milk, with more adults and families opting for plant-based beverages,” Mintel stated in their research released in February 2018. “Non-dairy milk sales are expected to grow to over $3 billion per year by 2020 while US dairy milk sales will decrease to $15.9 billion by 2020, an 11 percent drop.”
A glimmer of hope still exists for US farmers as a new tariff fee set by China is down by four percent, from 12 to 8, for cheese and from 20 percent to 0 on protein formula for people with nutritional needs. In addition, prepackaged infant food tariffs will decline from 15 percent to 2 percent.
China’s demand for cheese has grown exponentially since 2016 when imports totaled 213.7 million pounds, up 133 percent over 2015 numbers. At the end of 2017, imports of butter, cheddar by the block and barrel as well as Grade A milk were all on the rise from the US to China. However, new tariffs on aluminum and other manufactured goods being imposed by the United States could hamper this upswing as 2018 progresses.