Vermont Dairy in Tough Straits

Dairy economists at the USDA say there is a 'minimum efficient scale' and a 'maximum efficient scale' between which the unit cost of dairy output is flat, given constant input prices. This is the part of 'the curve' where dairy farms operate most efficiently. Unfortunately, the source does not define the size of a dairy operation at these points. It's a curve that suggests that below the 'minimum efficient scale,' unit costs decrease as volume increases. Above the 'maximum efficient scale' unit costs begin to rise again because input costs that must be purchased such as labor, manure haulage and disposal, and non-farm produced feed, etc., cause a higher cost per unit production.

In Vermont, it's likely that most dairy farms are too small to be on the 'flat' part of the curve portrayed.

The present economic pain for Vermont dairy farmers results from milk oversupply nationally and internationally and the first level derived products like powdered milk and bulk cheese. There simply are too many efficient cows, which suggests there are too many farms devoted to bulk dairy whose input costs are too high. (Fuel is not the culprit this year as it was before the last run-up in milk prices before the recession stimulated the plunge in market demand.)

Some suggest that milk could be marketed to leverage Vermont's quality 'brand cachet.' We have no evidence that 'cachet' could deliver higher retail prices for commodity milk. Most people are price sensitive for retail bulk milk and would not pay a large difference when brands exist side by side in the store. Vermonters might engage in a 'buy local' effort, but most Vermont milk is intermingled with other sources. The cachet associated with 'certified organic' milk could not support its higher price and the market retreated dramatically in this recession.

While it's certainly true that dairy creates a host of other related economic activity and jobs, other types of Vermont agriculture would support similar activity on the same, or perhaps even less, acreage. I am persuaded that Vermont's bulk milk output to available markets could be met by fewer more efficient operations freeing much of our open agricultural land for other, hopefully more profitable, uses.

Despite the good will and hope, market forces will severely limit bulk milk dairy in it's present form in Vermont.

And then there's the massive problem, mostly downplayed, of Lake Champlain's phosphorous load, nearly 40% attributed to agricultural runoff, mostly from dairy farms. In Missisquoi Bay, the estimate is 70% or more caused by agricultural runoff.

So, we are on the many horns of a painful dilemma. Vermont continues to lose dairy farms because of price contortions, distortions and market vagaries despite Federal government intervention. No one wants to see dairy farmers and related businesses lose their livelihood, but the present situation is untenable without long term subsidies, something Vermont can not afford to provide.