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Dairy Industry Goes Down the Tubes

If Washington had had any real concern for the dairy industry, in California or anywhere in the US, it would have dealt with the artificially low milk prices that have plunged the entire national dairy deal into unprecedented debt.

Perhaps Western United Dairymens’s Mike Marsh (WUD is a California dairy lobbying group) was correct that the USDA should have started buying the overstocks of bulk cheese months ago. The crisis, in the wake of the huge ethanol speculations of 2008 that pushed up feed prices, was known, seen, acknowledged. There was no mystery about what was happening and there were remedies — in pricing and in badly needed programs like simply supplying food banks with commodity cheese, as Marsh suggested.

But, instead, the situation was allowed to simmer, the Washington opinion was “over-production” was causing the problem when, in fact, as almost always in agricultural commodities, the problem is distribution, as in providing food to hungry Americans for whom, if they live in places like Merced and Tulare counties in California — the two largest dairy counties in the nation — the economy sure looks more like depression than recession. The foreclosure rate in Merced increased to nearly 20 per cent last month and is showing no signs of abating. Tulare County’s August unemployment rate was 15.2 per cent. Merced’s was 16.7 percent. And that’s “official.”

In the simmering summer, as debt was allowed to pile up in an industry whose prices are set by government to the point that hundreds of thousands of cows were “bought back” and slaughtered and smaller dairies went out of production and often into bankruptcy, government did nothing effective. If the “family dairy” corporation had not in recent years received the large capital infusion from a sale of Southern California real estate that provided a capital cushion sufficient for its new mega-dairy in Northern California to survive the 2009 prices, that dairy’s chances of survival were smaller, regardless of the size of its herd.

The $350 million the Senate Boxer-Feinstein and House Costa-Cardoza political teams are demanding will go to banks. The reason for the rigged milk prices on the Chicago Mercantile Exchange, the “basis” for both federal and California milk prices, is the debt load incurred in the mergers and acquisitions that created the monopoly of Dairy Farmers of America and Dean Foods at the top of the dairy processor/distributor pyramid, coupled with its power to manipulate the CME dairy commodity prices in dual roles as sellers and buyers.

As the over-production propaganda and bank bailouts continue, August imports for milk protein concentrate soared. MPCs are not defined in the US as milk products, are not GRAS (Generally Recognized as Safe) milk products, are imported from countries like Belarus, Ukraine and the Peoples Republic of China (where dairies are not inspected by the USDA), and are used as cheap additives to cheese and other dairy products here. The “legal” basis for their importation comes from the World Trade Organization, not from any US agency concerned with food safety.

This is nothing but another public gift to banks. If dairy cost/price ratios continue along the same dismal path to keep profits high for Dean Foods/DFA investors, all it will really achieve is to allow mega-dairies to pay down enough debt to borrow more to buy smaller dairies to produce more milk at a loss until the banks again go to Congress for more taxpayer funds to get bailed out again so that even fewer, larger mega-dairies can again restore their credit and buy more cows, until the next time.

It is an absurd system, one of many now dysfunctioning along in the nation. Social status in the agrarian sector of the San Joaquin Valley is based on the  size of one’s debt. Our fine “family” dairies mortgage cows but their manure don’t stink.

BILL HATCH lives in Merced, CA. He can be reached at wmmhatch@sbcglobal.net.