The Agricultural Committee in the Maine State Legislature has delayed addressing a projected $4.8 million shortfall in a state subsidy Tier program, but the financial problem still lies ahead for the roughly 330 dairy farms in the state.
Larry Russell, owner/operator of Dyers Valley Farm in Newcastle, has grown up in the dairy business. His family farm has been in the business raising dairy cows for over 70 years.
“This is all I’ve done,” said Russell, who is 47.
Farms such as Dyers Valley could shut down if the price they get for milk drops as drastically as the 50 percent markdown various media sources have reported. According to The Bangor Daily News, prices dairy farms get for their milk is expected to bottom out by March and not begin to climb again until fall. The combination of a downturn in the global economy and drops in the export market are affecting the dairy industry nationwide and here in Lincoln County.
Dyers Valley produces 11,500 pounds per day and is the largest milk producer in Knox and Lincoln counties. Russell said the costs to operate his business aren’t dropping to reflect the falling price he gets for his milk and he’s concerned he won’t be able to continue running his farm.
“The price in the supermarket doesn’t drop, but it does for us,” Russell said. “Somebody’s making money.”
Russell said he and other dairy farmers don’t have a lot of say in what they get for their milk. The last estimated milk price for Dyers Valley was $15.84 per 100 pounds. Russell said this amounts to roughly $1.25 per gallon. He said that with a rock-bottom price, his farm would receive roughly $11 per 100 pounds, which is not enough to sustain business.
Russell has to pay to have his milk shipped to a dairy in Portland, which costs about $1 per 100 pounds. There are also taxes and dues he is responsible for paying in addition to the costs associated with running his farm. These costs include grain for the cows, fuel and maintenance costs for tractors and other equipment and supplies.
In the state funded Tier program, farmers are subsidized according to three tiers of production. The largest producing dairy farms get the smaller subsidies. The subsidies amount to a short-run, break-even price and are, according to Rick Kirsbergen of the University of Maine Cooperative Extension, the price farmers need to stay in business.
The state uses money from the General Fund to support the Tier program and processors such as Hood and Oakhurst pay a handling fee that goes into the General Fund to support dairy farmers. Kirsbergen said this money has dropped in recent months, which is why state legislators have been thinking about cutting funds.
According to Rep. Wendy Pieh, who chairs the committee on Agriculture, Conservation and Forestry in the Maine State Legislature, the Legislature will re-evaluate the program by May 1. Monetary support is still going out to support farms in Maine, despite the projected shortfall.
Tim Drake, Executive Director of the Maine Milk Commission and other representatives in the dairy industry met with legislators over the course of several workshop sessions last week and the week before.
“They’ve compressed the problem into two months instead of four,” he said.
Drake, who has been asked by the legislature to administer Tier program funding, said the Commission projected they would be over budget by roughly $4.8 million for fiscal year 2009. Leaving the situation to sit until May to look at ways to cut the budget from now until the end of the fiscal year leaves just two months, he said. The fiscal year runs from July 1-June 30.
Handling fees weren’t designed to fund the Tier program entirely, Drake added. Tier program funds are based on a blend price, whereas handling fees are based only on the class one price (fluid milk sales at retail level). Over the past year, milk prices have been very high and handling fees have consequently been low, resulting in less money going into the General Fund.
Drake said he would continue to distribute funds via the processors, as required by state statute until the Agricultural Committee re-evaluates the fund. The only way they could make cuts is to change the legislation, he said.
Aside from state and federal funding, the market is what will determine the prices farmers get for their milk.
“Either production has to go down or the price has to increase,” Drake said.
According to Bob Wellington, Senior Vice President and Economist for Massachusetts-based Agri-Mark dairy cooperative, New England dairy farmers are being impacted by increased milk production in Western states.
“It has nothing to do with local demand,” Wellington said.
Multiple sources consulted for this report agree that if production in the western states drops by as much as one percent, that could be enough to raise the price of milk given to local producers. Additionally, overseas demand for New England dairy products has dropped by 10 percent.
“This is a very serious issue for farmers,” Wellington said, adding that Maine farmers may be a little better off than others because of the state funded Tier program.
Since the program’s budget is under scrutiny, farmers and other industry representatives are seeking other alternatives. Wellington said he has been working with state legislators to try and resolve the crisis.
He hopes to take advantage of President Barack Obama’s proposed stimulus package and to increase the percentage farmers get from the federally funded MILC (Milk Income Loss Contract) program.
When farmers and other representatives got together last week with the Agricultural Committee it was determined funding would continue until May. Between now and then, Russell holds hope that the market will pick back up again.
As a second tier farm, Dyers Valley would be most be affected by any cuts proposed. Russell thinks it should be fair to everybody with a straight percentage cut for all the farms.
“We wanted the committee to be fair to all farmers,” he said. “All the farms are equally important for the state of Maine.”
Bigger farms help maintain the infrastructure, he said. The small farms add up in numbers, helping to keep costs down. “We all need each other to survive,” he said.
