Milked Dry On The Dairy Farm

Dairy farming near Turin, N. Y., has never been all milk and honey. But these days, it's especially grim. With milk prices at a 12-year low, some farmers have auctioned off cows and equipment. In June, at least one committed suicide because of money woes. Others, such as Joe and Kay Zeosky, who milk 115 cows on 218 acres, are barely making it. "This is the worst it's been in the 37 years we've been farming," says Kay.

Across the country, the story is the same. The Agriculture Dept. predicts dairy revenues will fall this year by 14%, to about $17.5 billion--accounting for most of a projected 5% drop in total farm income, to $55 billion. To avoid accelerating a shakeout that has culled U. S. dairy operators by 38% over the past decade, to 196,800, some states are propping up milk prices, and Congress is mulling over other relief measures. This pits small traditional dairies against megafarms, many of them in Florida and California, that favor letting the weak go under. "It sounds cruel, but that's what economics is all about," says John Zonneveld Jr., who has a 10,000-head operation in Laton, Calif.

BOOM OR BUST. Troubles down at the dairy are also raising allegations of profiteering. A General Accounting Office study shows that consumers have benefited little from a recent drop in wholesale milk prices because retail prices have stayed high. "While farmers are losing thousands of dollars, the retailers and others are turning a nice profit," contends Senate Agriculture Committee Chairman Patrick J. Leahy (D-Vt.). E. Linwood Tipton, president of the International Dairy Foods Assn., counters that because of higher labor costs, retailers' and processors' profits from milk aren't rising.

Whatever the case, it's clear that the 1985 Farm Act has failed to smooth out the dairy industry's boom-and-bust cycles. Washington paid farmers to slaughter cattle, as a prelude to cutting the huge federal subsidies that had led to milk and cheese surpluses. As herds and milk supplies shrank, prices paid to farmers rose. The 1988 drought and a jump in skim-milk exports in 1989 accelerated the trend. Retail prices leapt 15% in two years, to an average of $1.39 per half-gallon in December, 1990. As prices rose, farmers produced more.

Then late last year, milk surpluses started driving down wholesale prices. The Agriculture Dept. predicts that the average price farmers get in 1991 will slump to $11.40 per 100 pounds, far below the $13 that dairies need on average to break even. But federal price supports won't bail farmers out as they used to: Washington now guarantees just $10.10 per 100 lb. So many farmers face a grim dilemma: With land prices low, selling out doesn't fetch much. But shifting to other types of farming is tough, because most dairy farms are small and their equipment can't be put to alternative uses.

To help cushion farms against failure, New York and most New England states adopted programs this spring that guarantee dairy farmers payments above the federal support price--generally $1.39 extra per 100 lb. Some angry urban legislators complain that the guarantees will clobber the poor by adding 8~ a gallon to retail milk prices. But backers such as Massachusetts state Representative Jonathan L. Healy argue that letting local dairies die would force New England to import milk from other states and "pay through the nose for lower-quality milk in a few years."

CREME DE LA CREAM. Congress, meanwhile, is considering setting production targets based on each farmer's past performance. Farmers would get a higher support price for milk within the quota and less for anything above the target. President Bush, however, is likely to veto this scheme, arguing that it might be costly and raise consumer prices.

At the least, production targets might hold down growth of the biggest, most efficient farms. California's 2,400 dairies produce nearly as much milk as Wisconsin's 30,000, in part because California farmers were quick to adopt computerization and new breeding techniques. The warm climate and variety of local feed also help. California farmers produce 18,420 lb. a year per cow, 27% above the national average. Zonneveld says he produces milk at $9.50 per 100 lb., 27% less than the U. S. average.

Small farmers still have enough clout to win legislative aid. But given the edge big operators have in the marketplace, that could only postpone the inevitable: One day, the nation's Zeoskys may be as rare as a milkman in Manhattan.