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SFGATE: Under pressure, Amish farmers begin to exit dairy business

By AD CRABLE | Oct 7, 2017

LANCASTER, Pa. (AP) — Elmer Petersheim of Manheim is a typical small Amish dairy farmer in Lancaster County.

He has invested heavily in cows and related machinery over the last 17 years. Now, with depressed milk prices seven out of the last eight years, Petersheim is in debt and wonders how much longer he can hang on.

He has seen other milk men around the county sell their cows or turn to growing produce or tobacco to pay the bills.

But he doesn’t want to give up his way of life as a dairy farmer.

His concern is shared by other local Plain Sect dairy farmers — a considerable source of milk production in the state’s number one dairy county.

Some believe a retreat from dairy farming among Plain Sects has already begun.

There is no sign that Plain Sects are pulling up stakes altogether and leaving Lancaster County, but it is not clear how many would find long-term, profitable alternatives to their livestock-intensive dairy farms, their traditional livelihood.

Has a slow exodus of Plain Sect farmers from the dairy business in Lancaster County already begun?

The farmers do not blame consumers’ declining milk consumption for their predicament.

Rather, frustrated local Plain Sect farmers here and around the state have banded together to protest — and in at least one case, sue — over the way milk is controlled, priced and sold after leaving their milking barns.

They blame what they see as lack of representation and empire-building by large, officially nonprofit milk cooperatives that now are assuming control of dairies and milk processors, and have broad powers.

Among the powers cooperatives wield are the right to deduct the costs of marketing and milk transportation from dairy farmers’ checks without having to itemize those deductions to the farmer.

The cooperatives also have voting rights on how milk pricing is set, while individual farmers don’t.

Milk cooperatives, which arose out of the Great Depression, pool funds from members and negotiate prices to help farmers assemble, haul, manufacture, process and market milk and dairy products to wholesale and retail outlets.

With few exceptions, nearly all dairy farmers in Lancaster County sell their milk through large cooperatives such as the Dairy Farmers of America, which represents nearly 14,000 dairy farms nationwide.

And the local dairymen are pushing for more transparency in the way the price of milk is uniquely controlled in Pennsylvania through the Pennsylvania Milk Marketing Board.

Questionable milk tax?

Only in Pennsylvania do consumers pay a 17-cents-a-gallon surtax on drinking milk. It has been as high as 28 cents and makes the cost of milk in Pennsylvania among the highest in the nation.

That milk tax, or premium as it’s called, raises $30 million to $50 million a year that is supposed to go back to dairy farmers and keep them in the black in tough times.

But some local farmers complain the money is eaten by large corporate-like cooperatives that do not always return the money to member farmers.

“Some do. With some it’s questionable,” says state Rep. John Lawrence, who represents parts of Lancaster and Chester counties.

Bernie Morrissey, a former agriculture insurance company owner from Ephrata who retired to become an advocate for local Plain Sect farmers, described the surtax revenue as “a slush fund for someone. We know it’s not going back to the farmer.”

Local dairy farmers also allege that cooperatives are encouraging more milk production to make more money at the expense of dairy farmers who suffer as prices drop during a glut.

Defending cooperatives

Not everyone in the milk industry agrees.

Thank goodness for cooperatives in hard times for the dairy farmer, says Justin Risser, a dairy farmer from Elizabethtown and past president of the Professional Dairy Managers of Pennsylvania.

“Cooperatives are not in it for the money,” he says. “Farmers think they are taking a lot out of their milk checks, but cooperatives have to. When they have an expense such as overproduction, they have to take that expense out and pass it around to every member of the cooperative.

“I don’t think there is anything going on with cooperatives that is unethical.”

Criticism of the Milk Marketing Board stems from the understandable frustration with ongoing tough times in the dairy industry. But the criticism is misguided, says its chairman, Luke Brubaker, patriarch of the large Brubaker Farms dairy operation in Mount Joy.

“We have a great system here in Pennsylvania which is benefiting most farms and also is benefiting the dairy industry of Pennsylvania,” he says. “I think the cooperatives are doing the best they can when there is an oversupply of milk.”

But local farmers who disagree are fighting back with legislation and calls for unsuspecting consumers to stand up for those down on the farm.

A very visible sign of their dissatisfaction occurred in August 2016 when some 800 dairy farmers, including many Plain Sect farmers from Lancaster County, descended on the 2016 Ag Progress Days in State College.

It’s an event meant to celebrate Pennsylvania’s rich farming heritage, built primarily around dairy farming.

But the farmers crowded into a hearing by the state House and Senate Agriculture and Rural Affairs committees to show their support for a bill introduced by Lawrence to require more transparency from dairy cooperatives on what they are doing with the milk money collected from consumers on behalf of farmers.

The bill — Lawrence’s third attempt — passed the House but died in the Senate without coming to a vote. The bill, which was opposed by dairy cooperatives, had the backing of all Lancaster County legislators.

In 2011, then-state Sen. Michael Brubaker of Lancaster County had attempted to go even further, introducing legislation to change the structure of the Milk Marketing Board and reform how the state’s milk tax is collected and distributed to farmers.

The bill died in committee.

Trying to hang on

To local dairy farmers, these failed attempts are a sign that the power flows from the milk cooperatives and processors, not where the milk begins.

“Me, as a dairy farmer, I’m trying to pay my bills. I don’t really know what to do other than get it out to the consumer to know what’s actually happening,” says Amish dairyman Chester Fisher of Lancaster.

Fisher was one of eight Plain Sect dairy farmers who recently asked LNP to hear their concerns. More than 100 farmers wanted to attend a meeting with a reporter, but were requested to send a smaller delegation.

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“The bottom line is dairy farmers are going to go out of business if something doesn’t change. There will always be farmers in America, I believe, but it will be a corporate business.”

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“The bottom line is dairy farmers are going to go out of business if something doesn’t change,” said John J. King, a fellow dairy farmer from Pequea. “There will always be farmers in America, I believe, but it will be a corporate business.”

Morrissey’s conclusions are even more pointed.

“We do know the people in this room and the people they represent are going bankrupt,” he says. “They are getting less money and it costs more to make the milk. They are operating on borrowed money. They’re being eliminated.”

Morrissey says the spiral for the milk industry is so dire that he predicts many Plain Sect dairy farmers in Lancaster County will be forced to abandon their cows within 10 years.

“Lancaster County would never be the same,” he says.

Battling back

Are those concerns overstated?

Last month, at a dairy summit of sorts called by U.S. Bob Casey in the county, Cheryl Cook, the state’s deputy agriculture secretary remarked, “A lot of our dairy farmers are building broiler houses just to stay in business.”

Asked if he shared such a dire view of the future, Lawrence said Plain Sect farmers have always been resilient, “but you can continue in a money-losing operation only for so long.”

Sherry Bunting, a Caernarvon Township resident and regular contributor to Farmshine, a weekly dairy publication based in Brownstown, said: “The money, by and large, is not getting back to the farmers.

“As the cooperatives own more and control more of the balancing assets, we’re seeing more and more pressure on these small farmers,” she said.

Also at the LNP meeting was Mike Eby, of Gordonville, who sold all his cows in 2016 and became chair of the National Dairy Producers Organization, a grassroots group with hundreds of Pennsylvania members.

The group is dedicated to reforming the largest co-ops that Eby contends no longer look out for the best interests of member dairy farmers.

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“Why is there an oversupply of milk in excess of profitable demand? Follow the money. The answer is that simply everyone benefits from all the milk except the dairy farmer.”

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“Why is there an oversupply of milk in excess of profitable demand?” he asks rhetorically. “Follow the money. The answer is that simply everyone benefits from all the milk except the dairy farmer.

“These cooperatives have turned into empire building and these farmers you see in the room are helping to fund a monster corporation. That’s the problem.

“Presently, most U.S. dairy farmers are losing money on every cow they milk,” he said.

Eby is not Amish and neither are most members of his activist organization.

In 2016 he initiated a federal civil lawsuit on behalf of 115 farmers, including many from Lancaster County, against the Dairy Farmers of America.

The farmers allege that the cooperative, as well as its marketing arm DMA and Texas-based Dean Foods, the nation’s largest milk processor, conspired to monopolize the market on raw milk and drive down prices in the Northeast, leaving independent farmers and cooperatives without a market for their milk.

In response to the lawsuit, Dairy Farmers of America said in a statement, “We believe these allegations are without merit and the activities of DFA, DMA and other affiliated milk marketing cooperatives in the Northeast benefited cooperative members and independent producers alike.”

In 2011, Dairy Farmers of America agreed to pay $50 million to settle a class-action lawsuit. But the 115 farmers refused to settle and launched their own lawsuit.

The case is in a federal district court in Vermont.

Declining consumption

A core problem hindering dairy farmers throughout Pennsylvania from making a profit is the simple fact that people are not drinking as much milk or eating as much ice cream as they once did.

There has been a 14 percent decline in drinking milk — the most profitable use of milk — in northeastern states since 2010. The average person consumed 30 gallons in a year in the 1970s; now it’s down to 18 gallons.

That’s for a number of reasons.

Milk’s once universally accepted status as a healthy and necessary drink has been challenged. Milk is healthy and nutritious, but plenty of other drinks have emerged with the same benefits. Cow milk’s rivals now include plant-based milks from soy, almond and coconuts.

Animal-rights groups have further eroded the hold milk once had. Some consumers are turned off by growth hormones used for dairy cows.

Amid this decline in milk drinking, Pennsylvania has lost 23 percent of its dairy farms over the past 10 years.

The state, proud of its dairy prominence, is the only state to have less than a 1 percent increase in milk production from 2006-2016 and has slipped from fifth to sixth in dairy production, with Texas, more known for beef cattle, nipping at its heels.

The top five dairy states, in terms of milk produced, are, in order, California, Wisconsin, New York, Idaho and Michigan.

Not only are consumers drinking less milk, but increasingly out-of-state milk from as far away as Texas and Idaho is being sold in the state, using a loophole in regulations to thwart a unique effort to keep the state’s dairy farmers in the black.

Paying a premium

Pennsylvania is the only state with a mandated premium on fluid milk and a minimum retail price, designed to bolster its dairy farmers

It has led to some of the highest milk prices in the nation for consumers.

But the current 17-cents-per-gallon premium is placed on milk that is produced, processed and sold entirely within Pennsylvania.

Out-of-state milk does not have to pay the premium but can be sold in Pennsylvania at top price. That displaces milk produced in the state.

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“We have milk out of Lancaster County going into Michigan and Wisconsin and tankers bringing back a lot of their milk. It’s a game these cooperatives and corporations are playing and they are getting away with it because the consumer does not know about it.”

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Moreover, because of the closing of many milk processing plants in the state, as much as 40 percent of milk produced in Pennsylvania now goes outside the state to be pasteurized and homogenized where it’s more profitable to process and bottle.

Much of that milk then comes back into the state for sale, avoiding the milk premium intended to bolster struggling dairy farmers. It’s all perfectly legal.

“We have milk out of Lancaster County going into Michigan and Wisconsin and tankers bringing back a lot of their milk. It’s a game these cooperatives and corporations are playing and they are getting away with it because the consumer does not know about it,” insists Morrissey.

“The consumers are being ripped off because they think the milk tax is going back to help the farmer for weather-related problems and this is not so. The money is being held in a nest egg, so to speak, by the people who handle their milk.”

Facing angry farmers

State Agriculture Secretary Russell Redding recently faced the anger of dairy farmers in western Pennsylvania over Michigan milk displacing Pennsylvania milk even at their local milk processing plants.

“They could not believe the economics would allow the milk to flow here and yet they can’t find a market,” Redding was quoted as saying in Lancaster Farming.

Local dairy farmers are at a disadvantage with their counterparts in other states because their herd sizes are the smallest in the nation — 80 cows on average compared to a national average of 220. That means higher production costs because of smaller economies of scale.

Moreover, land prices for farmland here, as well as taxes, are much higher, adding to the costs of small-scale farming. And regulations are more prohibitive in urbanized areas.

As milk becomes overly abundant, dairy processors can cut costs by having drivers pick up milk at a few large dairies rather than making a bunch of trips to the types of small dairy farms that are emblematic of Lancaster County.

You would think that being so close to big metropolitan markets would be an advantage. But with 40 percent of milk now going out of state for processing, that means higher transportation costs that are deducted by cooperatives from the payments to local milk producers.

“These guys don’t have a level playing field anymore,” says Bunting.

Deepening distrust

In addition to complaining that marketing and transportation deductions are not itemized when they receive their checks, some Amish dairy farmers here have developed a blanket distrust of the large cooperatives.

Those flames were fanned this summer when Land ‘O Lakes Cooperative, which buys a lot of milk in Lancaster County, cut back its production levels and levied penalties against dairy farmers who sent more milk than newly set caps.

And earlier this month, the Dairy Farmers of America, the nation’s largest dairy cooperative, terminated its milk contracts after 17 years with a small nonprofit cooperative, affecting 180 dairy farms in three states, including some from Lancaster County.

In May, state Sen. David Argall of Berks and Schuylkill counties requested the Pennsylvania auditor general investigate the Pennsylvania Milk Marketing Board, which created and sets the price of the milk tax, and how milk tax revenue is distributed to farmers by cooperatives.

Department spokesman Barry Ciccocioppo told LNP that Auditor General Eugene DePasquale “has instructed his team to gather additional information. He added a review of the Milk Marketing Board to the growing list of audit and review requests, but given pending budget cuts, it is too early to say when we might be able to get to it.”

Other opinions

Luke Brubaker, whose family runs a 1,000-cow dairy operation, says he does not see a troubling exit from dairy farming in Pennsylvania.

“There’s a few, but not a great exodus,” he says.

And he says the core problem facing dairy farmers is there is simply too much milk to go around.

He says a lot of the criticism aimed at cooperatives and at the Milk Marketing Board he chairs is unfair.

He has high praise for the 330-member Mount Joy Farmers Cooperative — one of only two county-based cooperatives — his family sells its milk to.

“If somebody is complaining about their cooperative, then they should find another market if they are not satisfied,” he says.

But he believes “cooperatives, in general, are trying to do the best they can with the marketing situation right now.”

On transparency issues, he suggested farmers who don’t feel they are getting the answers on what is deducted from their checks should demand them from their cooperatives, rather than “passing the buck” and seeking a solution from legislators.

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“We are all making too much milk. We keep producing when prices go down which, in turn, magnifies the problem.”

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Without the milk tax created by the Milk Marketing Board to put money in dairy farmers’ pockets, he predicted 25 percent of independent dairy farmers in the state would get out of the business.

The real concern, he says, is that there is too much milk being produced to go around.

“We are all making too much milk. We keep producing when prices go down which, in turn, magnifies the problem.”

Rob Barley and his family from Manor Township run one of Lancaster County’s largest dairy operations, with 1,400 milk cows.

He agrees more transparency in how milk tax money is handled is needed and the Milk Marketing Board could initiate it.

Milk Marketing Board members have responded to transparency questions in the past by noting that monitoring milk sales requires proprietary information that can’t be disclosed. Also, the board has said it does not keep track of all milk sales in the state.

Barley believes there are legitimate arguments that it would be better to drop the milk tax altogether and let the market rule.

If the milk premium is to continue, it should be distributed to producers more equitably, he says.

Barley is in favor of dropping a minimum retail price on milk in Pennsylvania and letting the market dictate price.

Of large cooperatives, he says, “There’s no conspiracy. I have no doubt they have the best interests of the farmers in mind.”

Some think dairy farmers, consumers need to rise up

So, what can be done to improve the dairy farmer’s lot, if consumers aren’t willing to drink more milk?

Mike Eby, of Gordonville, who sold all his cows in 2016 and became chair of the National Dairy Producers Organization, a grassroots group, is convinced state and federal legislators won’t step up and address entrenched problems.

So he advocates a grassroots mutiny by dairy farmers to challenge the cooperatives’ management style.

And he wants to educate consumers, whose clamor would get the attention of legislators.

For starters, Eby and his organization have begun asking local grocery store chains to label whether their beef comes from the United States or not. Beef that comes from selling aging Lancaster County milk cows is considerable, he says.

Next, he wants the stores to label where their milk comes from. Eby says a considerable amount is milk blended with powdered milk from New Zealand, China and other countries.

Once educated, consumers could then demand they want local beef, milk and other dairy products.

Bernie Morrissey of Ephrata, a spokesman for disenchanted local dairy farmers, also thinks a public outcry to the way small dairy farmers are being treated is the key to moving state and federal legislators into action.

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State of milk in Pennsylvania

Here are the stats, based on U.S. Department of Agriculture information, showing changes between 2006 and 2016 for PA.

Number of cows: -4.8%

Number of dairy farms: -22.8%

Total milk production: +0.7%

Price for gallon of milk: +15.3%

Net price farmers receive for milk: +16.1%

PA’s rank among all states in milk production: 6th

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Online:

http://bit.ly/2ymCgMj

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Information from: LNP, http://lancasteronline.com