Exports are not the answer: Economic analysis shows dairy exports have little impact on milk prices
Growth in export markets has long been lauded as the measure of success in American agriculture. Last year U.S Secretary of Agriculture Sonny Perdue credited exports for being a “major driver of the rural economy, generating 20 percent of U.S. farm income and supporting more than a million U.S. jobs.”
Those statistics conceal a hidden truth that most farmers know first-hand: exports don’t actually bring better prices. In dairy, exports have reached historic highs - now topping 15 percent of the total U.S milk supply — but that growth has failed to provide farmers a livable wage.
In a recent webinar hosted by Wisconsin Farmers Union through the Dairy Together initiative, dairy economist Chuck Nicholson explained, “price impacts of export growth tend to be limited. One of the reasons for that is the milk supply response. If we have opportunities to sell more product, typically the industry can respond fairly readily.” In other words, opening new markets generates demand in the short term, but farmers quickly ramp up supply right along with it. Any price increase is quickly neutralized.
Nicholson’s analysis shows that for every 1 percent increase in dairy components exported, the All-Milk price increases by only 10 cents.
Despite the limited impact on milk prices, the U.S Dairy Export Council aims for a goal of exporting 20 percent of the U.S milk supply, a 5 percent increase from 2018 levels. USDEC claims that export growth benefits everyone in the industry: farmers, consumers, and everyone involved in the complex dairy supply chain. But Nicholson’s analysis suggests that may not be the case.
“The primary benefits will go to farms that are growing because they are the ones that will be supplying that additional product that goes into export markets. Other benefits will go to supply chain partners like the processors and exporting companies that are also part of facilitating trade flows of dairy products outside the U.S.”
Exports do contribute to farm income, but the profits are not distributed equally among dairy farmers or throughout the supply chain. Nicholson explains the income distribution issue this way: “The average milk price does not increase that much by increasing exports. So farms that are not growing are going to see milk revenues that look a lot like the revenues we would see if we weren’t exporting very much. The place where there is a difference is farms that are growing will see a larger demand for their milk. The benefits are not higher prices, but bigger quantities.”
That’s why many farmers feel pressured to expand their operations to stay afloat. But others cannot or do not want to manage a large dairy operation. For them, higher prices are the only way to stay in business.
Since the price bottomed out in 2014, 7,339 U.S dairy farms have called it quits. If we want to save the 37,000 dairy farms that remain, as well as the rural communities they support, we need higher prices.
If higher prices are the goal, then exports are not the answer. To bring real prosperity to dairy farmers and rural communities, we need a national system to balance milk supply with profitable demand.
Visit www.dairytogether.com to learn more about the grassroots movement to bring fair prices to family farmers.