By Evan Visconti
The Northeast dairy industry, which manufactures mainly fluid milk and cheese, is suffering at the hands of COVID-19. Dairy Farmers of America (DFA), the largest dairy co-op in the nation, is advising their Northeast farmers to cut back production by 15 percent through July.
DFA has 1,300 member dairy farms in New York State and about 13,000 across the U.S., according to Megan Clancy, a milk market analyst for DFA, which directs the milk from individual farms to dairy manufacturers. It also advises farmers on how to operate with market conditions in mind.
The Cornell Cooperative Extension is another organization that advises individual farmers how to operate. Dan Welch is an associate director of the Cayuga County Cornell Cooperative Extension. Welch advises the second largest dairy county in New York State by giving farmers access to resources at the College of Agriculture and Life Sciences and the College of Human Ecology.
“We’re in for a period of volatility that most farmers have not had to deal with over the last couple decades,” said Welch.
The Demand for Dairy Shifted
The changes in the dairy market as a result of COVID-19 were a shock to those inside the industry.
“The last time milk prices hit this low was probably 2016, but what was different this time was the speed of the dip,” said Welch. “Agriculture economists had some idea in 2016 that lower prices were coming. This was such a sudden shock in comparison.”
Christopher Wolf, a professor of agricultural economics at Cornell University, said the Northeast has had to dump milk for the past five years in what’s called the “spring flush.” This is the time of year dairy cows produce the most milk, which can lead to an oversupply.
“This time of year, the extra milk that’s produced needs to be made into cheese and butter and stored for the holidays when dairy consumption is at its highest,” said Wolf.
Facilities that are turned on during peak months of production are called balancing facilities. Without them, there would be nowhere to go with excess milk that is produced during the spring but not immediately purchased. In addition to balancing facilities, dairy manufacturers need to produce more of what is actually needed.
“Part of the big switch was getting the supply chains right so that we were producing more of the products that people were consuming at home and less of the stuff that they had been consuming away from home,” said Wolf.
Because no one was prepared for a pandemic, milk manufacturers could not react quickly enough to line-up with changes in demand. “We were disposing of milk simply because there was nowhere to go with it. And that’s definitely not a sustainable business model,” said Clancy.
To avoid further dumping, DFA instituted a base excess plan. This was basically a strategy for farmers that limited their milk production to 85% of its normal amount.
“Each farmer can decide how to manage their business, so we have had some farms that chose not to follow the 15 percent reduction, because it was not required,” said Clancy. “But a lot of farmers chose to reduce their milk supply to align with the economic signals.”
Wolf referred to this as the “free-rider problem” – the farmers who do not cut back on milk production will benefit from others who do cut back. By lowering milk production, some farmers are limiting the supply while others capitalize on the resulting increase in price for dairy.
If the future’s market is correct and milk prices bounce back, Wolf said, “2020 won’t be nearly as bad as we thought, and those farms will regret having sold their animals.”
If milk prices do not bounce back, the effects could be “catastrophic,” he said.
Schools and Restaurants Closed
Schools provide a major source of revenue for the dairy industry as a whole. Experts are concerned that another wave of coronavirus could close schools and restaurants again in the fall.
“There’s been a ton of uncertainty, as well as disruptions that no one has ever seen before,” said Clancy. “It’s been extremely difficult to forecast what’s going to happen next,” she said. “A big question mark is if schools are going to reopen this fall or not.”
A large portion of fluid milk is bottled in individual cardboard containers for school lunches. These containers require a completely different manufacturing process from the gallon containers sold in grocery stores.
“Dairy processing plants are looking at schools to open soon, but we don’t know what that situation will look like in a lot of the country. What will the cafeterias look like?”, said Welch.
New York State public schools continued to provide lunch to children who qualify for free and reduced-price school meals even after lockdowns went into effect.
“One thing that really helped out was that some schools continued to provide meals to students across the Northeast, so some of the milk demand was still there,” said Clancy.
Restaurants are another key buyer of dairy products in the US. Closings as a result of the pandemic have completely changed the way people consume dairy products. “The move from eating away from home to eating at home made people’s consumption patterns completely different. When people go out, they’re more likely to consume dairy products on average,” said Wolf.
When restaurants began closing in April, dairy manufacturers lost one of their major buyers. Since then, restaurants have slowly reopened across the country, driving the demand for dairy back up, according to Clancy.
Although reopening seems beneficial to the dairy industry, Wolf warned that raising the infection rate will only make matters worse.
“New York is doing a good job controlling COVID, but some other states are not,” said Wolf. “Shutting these businesses down a second time I think is going to be absolutely catastrophic because those are the businesses where the dairy products are going right now.”
Government Aid Helps Farmers Stay in Business
Relief from the Department of Agriculture as well as state and local governments has helped drive the price of dairy back up.
“I think we’ve seen demand pick up because of those government programs, and I think dairy prices would be much lower if it wasn’t for those programs,” said Clancy.
The USDA established the Coronavirus Assistance Food Program to help purchase excess dairy that couldn’t be sold and distribute it to food banks. The program is also giving direct assistance to farmers, according to Welch.
The government is inclined to assist struggling dairy farmers because the dairy industry provides a great deal of revenue to local communities.
“If you’re thinking about economic impact in terms of generating employment and generating investment back into the local economy, dairy farms tend to be one of the better farms to have, if not the best,” said Wolf.
Labor, feed, farm supplies, and transportation are just a few of the ways farms invest back into their local communities.
“And they do it all year long because in dairy, you’re harvesting every day,” said Wolf.
DFA also launched its own campaign to donate dairy, called the Farmers Feeding Families Fund.
“We are partnering with different organizations across the country to get dairy into food shelters through donations and government funded programs,” said Clancy. “We’ve also donated milk and held drive-thru events in rural areas around the country.”
Donating milk is always better than dumping it, because the last thing you want to do as a farmer is waste your hard-earned product. Wolf said he is concerned that if another wave of lockdowns happens, the government “might not have the will to continue to spend this kind of money.”