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Is Borden Milking the System?
The demand for cow milk in the US has been decreasing since the 1970s. Europe and Australia are similarly affected by the popularity of milk substitutes, like almond milk and soy (for people who prefer to drink their beans). Consequently, milk prices have dropped to attract customers. Producers have yet to replicate their successful “Got Milk?” campaign from the 1990s.
At the same time, Borden, a major dairy producer, claims raw milk costs have risen along with transportation costs and other expenses. Employee pensions are due, though at least not all workers are unionized.
On top of that, major retailers could be moving toward operating their own facilities, cutting out companies like Borden and Dean entirely. In June 2018, Walmart opened its own milk processing plant in Fort Wayne, Indiana, where it will produce Great Value-brand plain and chocolate milk for roughly 500 Walmart stores in five states. -Food and Wine
Still, their prices don’t match their costs. Can milk producers raise prices sufficiently without scaring away customers? Is it too late to instill American Europhiles with cheese envy?
From a November article at Dairy Herd:
In many ways, the current supply/demand conditions in the global dairy market, at least in developed countries, seem to represent an example of the “treadmill theory of technology adoption” in agriculture, posited by Dr. Willard Cochran (University of Minnesota) in the 1950s. Farmers adopt new technologies to reduce their costs, but if most farmers do the same thing, it often leads to over-production of that commodity. Prices drop, so they end up generating less revenue.
Of course, this is a subsidized industry. Congress adjusted insurance for dairy producers as recently as 2018.
Despite the departures, U.S. dairy output continues to increase. In many instances, larger, mostly more efficient producers are obtaining the resources of the exiting farmers. [….]
Why is Borden, a company with over $1 billion in annual sales, filing for bankruptcy? Is such refinancing from the balance sheets of lenders an example of minimizing unavoidable losses or letting a favored industry off the hook for mismanagement?
Must these market disruptions be addressed by the government? Or is politics prolonging and aggravating necessary transitions?
Published in Economics
Borden’s fate is one of the purposes of the free market.
Make more cheese. Make more custard nog.
The problem Randy is that milk is not a free market. Borden can’t compete against subsidized Farmer co-ops. The entire industry is controlled by the government . It would take forever to explain.
It would take forever to just list the regulations.
Exactly right. Similar to the sugar and peanut markets; all grossly distorted by federal government action in response to lobbying by favored industries.
That sounds like a post.
But not as long as it would take to get the government out of the milk business.
Government is the original bucket calf.
As I recall, price supports in the dairy industry was originally adopted as a way to stabilize wildly fluctuating commodity proces. The goal was to avoid cycles of glut (leading to farmers pouring milk out on the ground) versus shortages and resultant spiking prices.
Then, too, the 1950s saw the initial school milk program arise as a way to absorb surplus production and provide a steady replicating market outlet. In my own elementary grades in the mid-50s, our entire “school lunch” program consisted of selling us half-pints of whole milk for 3 cents each, provide your own lunch.
Farm subsidies and other government interventions and policies can sure cause odd distortions. I had one local dairy farmer explain to me that while the federal government paid him not to produce more milk, at the same time school districts were contracting to buy all the milk he could produce, and on top of those government checks, the county was also paying him not to enlarge his herd nor to allow any future development of any of his land but keep it in agriculture. He laughed all the way to the bank.
I’m not sure there can be any way around food safety regulations (aside from other regulations of the industry) without relegating the FDA to a purely advisory role, like Consumer Reports. But might there be potential for establishing less regulated sub-industries that trade away government assistance and insurance in exchange for more freedoms?
Could escape of some regulations help companies bound to compete with hyper-regulated but subsidized and protected rivals?
On a related note, which laws and standards regarding agriculture could be changed? Which, if any, are relics of dilemmas since conquered by experience, technology, and new trading patterns?
Matt it does sound like a post however I have been out of the business now for 24 years and its all changed probably for the worst. I would rather play with my grandchildren and dog than research it all . Oh yea and my wife.
All of that and more is true. I used to say the whole price support thing is a dog chasing it’s tail.
Unfortunately it’s not just dairy. As Jimmy Mac said above it’s sugar, peanut, cotton and hugely now corn with the ethanol subsidies. However these kind of programs are through out the world.
“I spent two and a half years examining the American political process.
All that time I was looking for a straightforward issue. But everything 1
investigated — election campaigns, the budget, lawmaking, the court sys-
tem, bureaucracy, social policy — turned out to be more complicated than
I had thought. There were always angles I hadn’t considered, aspects I
hadn’t weighed, complexities I’d never dreamed of. Until I got to agricul-
ture. Here at last is a simple problem with a simple solution. Drag the
omnibus farm bill behind the barn, and kill it with an ax.” PJ O’Rourke
Here’s an odd thing. I live in a town that is both close to the Canadian border and laden with dairy production. Darigold, aka Northwest Dairy Association, is one such subsidized co-op. Based in Seattle, they have a large plant here. They have received something on the order of $27M from the state government since 2000. That doesn’t seem like a huge amount for a company making $2B in revenue a year.
We are close to Canada and our dairy products are subsidized where Canada’s are not. So, they come down here for milk. It is not uncommon to see someone pushing a shopping cart full of milk (in jugs, of course). Here is a video showing Canadians going in to scrap mode on a pallet of milk at the local Costco.
Now, what is funny is that folks all believed for a long time that the Hindus wanted the milk for weird religious practices.
Anyway…
In Calif for at least the last 12 years, farmers are supposed to see to it that each day, their cows spend X amount of time outside the barn and in the fresh air.
This nonsensical approach to the dairy industry leaves the farmers in a bizarre situation. They are having to try and shoo the cows out of a shady barn in the summer when the temperatures are soaring, and to also have to shoo them out of the barn in the winter when the temps are lower and sleet is falling all around them.
Cows are really not so dumb that they would spend all their time inside unless there was a reason for it. I think legislators often project their lack of common sense onto the rest of God’s creatures.
That is government. People that know little making laws for those that do.
Great idea, but it would require the bureaucrats to relinquish their power. Unlikely to happen.