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Inside this issue:

WHERE’S THE COMPETITION?

New York’s mailbox price doesn’t reflect surging demandBy SHERRY BUNTING

Special for Farmshine

BROWNSTOWN, Pa. --Chobani Greek Yogurt is delicious,nutritious, and has gained ravereviews from consumers – as havethe Fage brand and Greek-styleyogurts in general. While the NewYork-based Chobani now tops theyogurt category, according to mar-ket research published last week,many question whether the surge indemand for milk at New Yorkplants is bringing a “renaissance”for dairy growth to the state’s farm-ers.

On April 14, New York’sObserver-Dispatch reported theChobani plant in Chenango Countyrequires about 3 million pounds ofmilk per day. Company officialssaid their demand for milk is sohigh that it comes from every cornerof the state: And they need more.

Bruce Krupke, executive vicepresident of the Northeast DairyFoods Association (NEDFA)basedin Syracuse was quoted as sayingthe company’s impact on theEmpire State’s dairy industry is“huge.”

Chobani officials state the com-pany’s rapid growth has outpacedthe ability of New York dairy farm-ers to grow their herds to meet thedemand. NEDFA’s Krupke said fur-ther:“The important thing for dairyfarmers is that the demand helpskeep them in business.”

But a revealing look at the mail-box milk prices graphed here showa different story. The net price paidto New York farmers has faredpoorly, especially since 2008, com-pared with neighboring states andcompared to the U.S. average. FromJan. 2006 through Jan. 2011, theaverage price for 61 months was$13.40 for the U.S. and $13.39 forNew York. Pennsylvania’s was$13.76; Ohio $13.79; and New

England $14.14. But what is evenmore interesting is how the gaphas widened in the most recentyears.

For more than a year now,industry sources have saidNortheastern states need 7% moremilk to keep up with new demand.New York is in the heart of that“new demand,” and yet, New Yorkdairy farmers still struggle to seethe benefit in their milk checks.

While the Observer-Dispatchstory mentions the Chobani plantin Chenango County, the Fageplant in Fulton County and plansfor Alpina Foods to open a yogurtmanufacturing plant in GenesseeCounty, as well as the long list ofother New York dairy processinginterests, the mailbox prices paidto New York farmers – when com-pared to other states – have notlived up to the billing.

For an 18-month period in2009-10, milk prices paid to farm-ers – nationwide – were wellbelow breakeven. But even asthose prices have been higher forthe last half of 2010 into 2011,costs for feed, fertilizer and fuel onthe farm have risen to unprece-dented levels.

But there is something evenmore difficult to wrestle with …lack of competition. A lawsuit inBurlington, Vermont, is revealingone of the reasons why: Newgrowth and competition in themarket is eclipsed by the fact thatthe nation’s largest milk coopera-tive Dairy Farmers of America(DFA) – and its marketing armDairy Marketing Services (DMS)– controls the whole shootin’match. Full-supply contracts setDMS and DFA up as the “gate-keeper.” The 800-pound gorilla.

As has been the case in theSoutheast – where there is alsoantitrust litigation and millions of

turn to page 5

Q:Why are New York farmers

not benefiting from beingclose to consumers and inclose proximity to processorswho need the milk for thisgrowing array of dairy prod-ucts, especially yogurt?

A:Lack of competition.

Somebody is controllingthe whole shootin match.

pages of depositions expected to head to trialthis summer – regional interests are trumped bycentralized, one-size-fits-all approaches to milkmarketing.

In the Southeast, the premiums are still high-er than the rest of the country, but the farmersthere indirectly payto bringoutside milk intotheir region to fulfill the high fluid demand,which outstrips the local supply. The currentpooling provisions have allowed divertedmilktoerode the Class I utilization percentageand the Southeastern farmers’ mailbox milkprices as well. While the Class I processors paythese transportation credits, the credits arepooled and then drawn from to pay the freightfor the outside milk. Without the so-called T-credits, would that flood of milk continuetoerode the Southeastern states Class I utiliza-tion percentage? Probably not.

Lookout Northeast: The T-credits disaster inthe Southeastern states is headed to a milkcheck near you.

For starters, National Milk ProducersFederation has an elaborate centralized, one-size-fits-all plan called “Foundation for theFuture.” Part of this plan is to have USDAimplement “intramarket credits” and “balanc-ing credits” for the cooperatives as soon as theycan get the other four pieces of this “national-ized” package of policy proposals introducedand passed into law.

Back to New York: One would think theseburgeoning dairy markets would fan the flamesof competition. Think again.

Among Northeastern states, New York’smailbox price is lowest. In 2006 and 2007, itran close (within two to 41 cents) with its vari-ous neighbors and was 13 to 18 cents per hun-dredweight (cwt) higher than the U.S. average.

But in 2008, New York’s mailbox price tooka nosedive to levels 33 cents below the U.S.average. Some of that gap was recovered in2009, but New York was still eight cents belowthe nationwide average. Then in 2010, NewYork’s mailbox price was equal to the U.S.

average, but has not yet regained its prioradvantage.

Furthermore, the gap has continued to widenwith New York’s neighbors. In 2010, for exam-ple, New York’s mailbox price ran 64 cents/cwtbelow Pennsylvania’s; 84 cents/cwt belowOhio’s; and $1.17/cwt below New England’s.This compares poorly with 2006 when NewYork’s mailbox price was 17 cents/cwt belowPennsylvania’s; two cents/cwt above Ohio’s;and 41 cents/cwt below New England’s.

The loss of mailbox revenue has been so

severe since 2008 that the entire Jan. 2006through Jan. 2011 five-year average mailboxprice for New York is one cent per hundred-weight below the U.S. average mailbox price.One would think that should be impossiblewith the “competition” of processing interestsand local fluid milk drinkers in the backyards of

Empire State dairy farmers.Pennsylvania’s mailbox price has also lost its

advantage compared with Ohio and NewEngland despite the state-mandated premium.The Keystone State has a mandated over-orderpremium paid by consumers on every gallon ofpackaged fluid milk, which is intended, by law,for the dairy farmers. But even Pennsylvania’smailbox milk price has gone from being 20cents above Ohio in 2006 and 2007 to being 20cents below Ohio in 2008, 2009 and 2010.

Unfortunately, the rate of consolidation inthe dairy industry has evolved to an increasing-ly centralized control that puts the decision-making into the hands of boards that no longer

reflect regional concerns. The one-size-fits-allcontrol by large nationwide cooperatives andmarketing agencies allow for the collection ofpremiums from various markets by moving themilk around.

In Pennsylvania, for example, milk comes tothe Carlisle butter/powder plant from Floridaand that same site is the staging area for

Pennsylvania milk headed to the Southeasternstates. The situation of trucks waving to eachother down the road has evolved to elaboratebackhaul advantages to pick up premiums andcredits along the way. That would be okay... ifthe farmer saw some benefit in his mailbox.

Market observers simply scratch their headsand wonder: Why aren’t Pennsylvania farmersbenefiting more from having a state-mandatedover-order premium?

Why are New York farmers not benefitingfrom being close to consumers and in closeproximity to processors who need the milk forthis growing array of dairy products, especiallyyogurt?

Why aren’t the Southeastern farmers benefit-ing from being close to consumers and havinga local supply of fresh fluid milk?

In a logical world, those regional benefitswould make sense, especially given the price ofdiesel fuel since 2008. They also make sensebecause living and farming among consumersis more expensive than living and farming athousand miles away from consumers. But is itreally in the consumers’ best interests to flatlinethe milk price to where the local milksheds losetheir ability to recover a local competitive pre-mium?

The problem is lack of competition. Thefarmers know it. The lawsuits are uncovering it.The USDA and DOJ have drawers full of filesdetailing the problem as it has gotten worsesince 2002. Members of Congress bemoan theissue in letters and meetings.

But nothing changes. The increasingly con-centrated and centralized grip on the dairyindustry keeps getting tighter and tighter. Theconsolidation of Federal Orders in 2000 pavedthe way for it.AUTHOR’S NOTE: Chobani’s Greek-style

yogurt finally came to my local grocer in south-eastern Pennsylvania. It is delicious. My fami-ly loves it, and I’m buying a lot of it. Butbecause I’m involved in dairy reporting, I’mnot buying the hype that New York farmers arebenefiting ... until I see their mailbox milk pricerecover the ground it has lost ... and then some.

Farmshine, Friday, April 29, 2011 — 5

Where’s the competition? from page 1

The "mailbox price" is defined by USDA as the net price received by dairy farmers for milk,including all payments received for milk sold and deducting costs associated with marketingthe milk. Data reported by USDA. Graphic compiled by Sherry Bunting.