WASHINGTON — With a gallon of milk costing as much as or more than a gallon of gasoline this summer, a consumer scanning the supermarket shelves might think the situation is a cash cow for dairy farmers.
In reality, it isn't. As the price of milk hovers around $4 a gallon, dairy farmers nationwide still are struggling with the aftermath of what's dubbed the Great Dairy Recession.
"For a young guy starting out in dairy farming, it's tough," said Jim Heckman, a farmer in Walker Township, Pa., who sold his dairy herd in May. "I wish them the best of luck, but I don't think they'll make it."
While milk prices have rebounded since 2009, feed prices have stayed high, and farmers now are just breaking even, though many of them remain heavily in debt.
Thousands of farmers, from Vermont and Pennsylvania to Idaho and California, have exited the dairy business, according to industry numbers. According to the U.S. Department of Agriculture, there were 65,000 dairy farms in 2009, a decline of 33 percent from 2001. Despite the decline in the number of farms, milk production rose 15 percent in the same period.
Some in Congress want to replace longstanding safety nets for dairy farmers with new ones that better reflect the challenges they face.
The debate comes as Congress gears up its debt-reducing "supercommittee" compelled to cut billions in federal programs, potentially impacting dairy subsidies. The outcome of any new policy, meanwhile, could affect not only those who milk cows and process dairy products, but consumers' costs as well.
"The current dairy safety net failed a lot of producers," said Chris Galen, the senior vice president for communications at the National Milk Producers Federation. "Farmers are terrified because they don't have a strong leg to stand on."
Adding to their uncertainty: Groups representing dairy farmers and processors can't agree on one key component of dairy reform, and no one can predict how ongoing discussions in Washington about reducing federal deficits could affect efforts to help farmers.
The USDA has long supported dairy farmers, but those programs took shape during the Great Depression, when dairy farming was a very different business.
"There used to be a time when milk supply was local. You had a cow on your farm and fed your family or shared with your neighbors," said Michael Marsh, the chief executive officer of the Western United Dairymen. "It hasn't been local for decades now."
The good times for dairy farmers ended in late 2008. Prices collapsed with demand in a weakened economy, and a healthy export market turned sour. At the same time, the cost of feed skyrocketed, driven in part by the diversion of corn for ethanol production.
Some farmers lost a generation of equity in a matter of months, then borrowed huge sums just to stay afloat. Others sold their dairy cows at auction — for meat, not milk.
"It was just catastrophic. We had a couple farmers who took their own lives," Marsh said. "There's no way we can go through that again."
Rep. Collin Peterson, D-Minn., the ranking member of the House of Representatives' Agriculture Committee, outlined last month a draft proposal to help dairy farmers, including overhauls to price supports.
Most of the reforms in Peterson's draft aren't controversial. However, not everyone is happy with a program that would set limits on milk production in an effort to prevent oversupply and price fluctuations. Farmers won't get paid if they produce extra milk.
"It's effective at helping stabilize prices, but different groups and regions have different views," said Chuck Nicholson, an associate professor of agriculture policy at California Polytechnic State University in San Luis Obispo, Calif.
For example, if farmers in one region, say the Southeast, have reached their production limit, there could be a shortage of milk. It would have to be trucked in from other states, and the higher cost could be passed along to consumers.
Bob Yonkers, the chief economist for the International Dairy Foods Association, said that any effort to constrain milk supply would make U.S. dairy less competitive. In the past decade, exports have increased from 5 percent of milk production to 12 percent.
"We're tied to the world market," he said. "We didn't used to be."
Rep. Mike Simpson, R-Idaho, who supports Peterson's plan, said he realizes that everyone wants something different.
"I've worked on dairy policy long enough to know that unity is an elusive goal and regional disparities inevitably muddy the waters of reform," Simpson said. "Still, I believe it is important to put a concept on paper."
Still, any dairy reform efforts may be at the mercy of the 12-member debt-reduction "supercommittee" that begins work next month.
Galen of the National Milk Producers Federation worries Congress might not act quickly enough. The federal farm bill expires on Sept. 30, 2012, and struggling dairy farmers need more certainty sooner than that.
"There's a certain sense of urgency," he said. "If the farm bill doesn't get done for another 15 months, it may be too late."
Many farmers aren't waiting.
For 39 years, Heckman supplied milk bottlers and cheese and ice cream makers.
"There was always a market for my milk," he said.
He said he started losing money 10 years ago, and in the past few years it got worse. Heckman sold his 28 dairy cows in May.
Heckman, who's 62, said there wasn't much the government could do to make him change his mind.
"As far as me getting back in, no, I don't think so," Heckman said. "Unless Obama comes in and gives me a trillion dollars."
(Cliff White of the Centre Daily Times in State College, Pa., contributed.)
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