Low milk prices due in large part to a few years worth of overproduction has some experts wondering about whether a dairy model similar to Canada's might be a solution.
Since 2014, when dairy farmers were receiving about $25 per 100 pounds of milk (a gallon is about 8.6 pounds), prices have dropped to about $17, said Mark Stephenson, director of dairy policy analysis for the University of Wisconsin-Madison.
Mark Stephenson. Photo courtesy of Mark Stephenson
While the U.S. places no regulations on how much milk a dairy farm can produce, Canada has taken a different approach, placing limitations on production to help stabilize the market. Additionally, the country places steep tariffs on dairy imports, Stephenson said.
Consequently, Canadian milk prices are more stable. But they're also more expensive for consumers, with costs sometimes 25 percent higher than U.S. prices
But even in Canada there is controversy over whether this model is best, with some farmers frustrated they can't produce more than their quota, even when the market demands it.
"We've had a few Canadian dairy farmers that have relocated down into the U.S., simply because they wanted the ability to produce more milk," Stephenson said.
Stephenson said when prices were high a few years ago, domestic dairy farmers got the hint that demand was high, and began to produce more.
"Since we have roughly 40,000 dairy farmers in the country, they all receive that signal at the same time," Stephenson said, noting that can quickly lead to overproduction and eventually push down prices.
Milk productions isn't the problem, said Stephenson. According to a U.S. Department of Agriculture milk production report, production nationally totaled 17.9 billion pounds for the month of May, which is an increase of about 1 percent from May of last year.
"The real problem is the persistence of these low prices," Stephenson said, noting that prices usually plunge low for a year or so before getting back to normal. "This time, we're entering our fourth year of low prices."
Whether Canada's model provides a solution, Stephenson said there are primarily two reasons why milk prices can't get back up.
First, there's competition with the global dairy market, especially as the European Union has beefed up its production.
"That's displaced some of the sales opportunities we would have had," he said.
Additionally, Stephenson said Wisconsin in particular is being flooded with overproduction from states such as Michigan that can sell to processing plants at a reduced price.
Michigan has doubled its milk production in the past 15 years, but the state doesn't have enough processing plant capacity to manage all of the milk produced. Those farmers then sell to plants in Wisconsin, who can take the "distressed" milk at a discounted rate.
Stephenson said it's unlikely a system like Canada's could find a home in the U.S. dairy market, because opinions vary so greatly on how to best control the market. While some might agree with Canada's system, others will fight any regulations restricting them on how much they can produce and sell.
Stephenson is convinced the market will correct itself, but said it's legitimate to work out a solution to prevent these long-lasting market ebbs.
"I do think it's legitimate for us to think longer-term and say can we do something that keeps us from getting into these positions for a prolonged period of time?" he asked. "And I think the answer to that is yes."