Originally created 09/07/98

Dairy farm decline leads to milk deficit



DIGBY, Ga. -- As the last dairy farmer in Spalding County, Charles Rucks is just waiting for his youngest daughter to complete college before he sells his land and retires.

His frustration over years of losses explains why the number of dairy farmers across Georgia continues to dwindle.

With just 450 farms, Georgia faces a record milk deficit that farmers and agriculture experts say can be solved only one way: a multistate consortium to set prices.

Georgia imported 3.25 million gallons from other states in July. That was 65 percent more than the 1.97 million gallons of raw milk needed from out of state last July.

Milk processors are paying an extra 34 cents a gallon -- which many stores have passed on to consumers -- to buy milk from states as far away as New Mexico, Wisconsin and New York.

Mr. Rucks' 500-cow operation on the edge of Atlanta suburbia is on 500 acres ideal for development, leaving him better situated than most of his colleagues in south Georgia, where property is worth only as much as it can produce.

"Farming is not a way of life anymore. It's a ... business with return on investment," Mr. Rucks said. "The people who don't know how to manage it like a business are no longer in dairy farming."

Some opponents of the price-support proposal -- called a dairy compact -- have argued it is simply an attempt to preserve a bygone way of life.

Mr. Rucks, though, said his lifestyle hasn't wooed his daughters to carry on the family business. Instead, they all vowed not to marry farmers.

"Operating costs continue to go up, and the only way we can cope is to milk more cows," he said, noting that he nets less money today milking nearly twice as many cows as he did 10 years ago.

Statewide, the number of farms dropped 33 percent between 1993 and 1996. Experts say that trend has continued at the same pace during the past two years as well.

To stem the decline, the Georgia General Assembly this year passed legislation to join 16 states including Virginia, Oklahoma and Kentucky in a compact that would set a minimum producer price for milk in the Southeast.

Gov. Zell Miller vetoed the deal, to the surprise of farmers and Georgia Agriculture Commissioner Tommy Irvin.

"The governor never once discussed it with me. I never once ever thought he would veto it," Mr. Irvin said.

Compact supporters are talking with both major fall election candidates hoping to succeed Mr. Miller, who can't legally serve another term. Democratic state Rep. Roy Barnes voted for the compact as a legislator, and Republican Guy Millner has voiced general agreement with the proposal during informal discussions with farmers.

U.S. Rep. Charlie Norwood, R-Augusta, whose district includes many of the state's dairy farms, is pushing federal legislation needed for the compact to set prices higher than federal milk marketing mechanisms.

So far, congressmen from big dairy states have succeeded in stalling the bill, and Dr. Norwood's office expects it to go nowhere until after the next Congress convenes in January.

Mr. Irvin, who is running for re-election this fall, said his argument for the compact comes down to freshness.

"My recommendations have been consistent and will remain consistent that milk is such a perishable product that it needs to be produced as close to where it is consumed as possible," he said.

The Southeast produces 9 percent of the country's annual milk supply while consuming 25 percent. To make up the difference, the nine commercial processing companies in Georgia import milk.

Shipping time from dairy to processor, where it is pasteurized, affects flavor slightly and reduces shelf life, meaning the "sell by" date on the carton will come sooner, industry officials say.

Georgia farmers who are closer to the processors contend they would invest in more cows and equipment to improve production if they could expect a higher price -- hence their call for a compact.

Air-conditioned barns, for example, cost $1,100 per head, but would overcome the South's unique heat stress that causes cows to eat less and thereby produce less milk in summer.

"The local industry is dying because the price is not sufficient to keep them in business," said Eatonton farmer Tom Thompson, president of Georgia Milk Producers Inc. "The compact is nothing more than what labor would look at as a minimum wage."

He predicted raising prices paid to farmers 15 cents per gallon would be sufficient to save Georgia's dairy industry. Retail customers, he estimates, would see their cost rise by only pennies because stores typically underprice milk as a way to entice shoppers.

Stable prices, as set by the compact, might actually lower prices, he argues.

"What is not really understood is that volatility allows the retailer to ratchet prices up. What you see is that when those conditions subside, the farm price drops very quickly, but the retail prices stay the same or come down very slowly. It gives the retailers a chance to make a little bit more money," Mr. Thompson said.

One economist disagrees.

"There is no question prices will go up," said Donald Ratajczak, director of Georgia State University's Economic Forecasting Center. "Price supports almost never help farmers. It may for a short time. The Kroger and the Publixes will look for the lowest-priced resources."

In the case of other commodities, such as wheat and corn, price supports have eventually disrupted supply, Dr. Ratajczak said.

Typically, farmers produce more when they make more money, creating the need for expensive storage facilities or simply driving down the price with oversupply.

Only improved roads to market and access to financing can help farmers, he said. But even those two factors can't overcome natural conditions, such as south Georgia heat or soil quality that keeps farmers here from competing against Midwestern dairies on equal terms.

"Your state doesn't grow its own avocados. You import them. Minnesota doesn't grow peaches. It imports them from you in Georgia," said Connie Tipton, vice president of the International Dairy Foods Association, a Washington trade group for milk processing companies.

"You don't have to grow everything locally to have it. We have a good transportation system, a good refrigeration system and a good system for importing milk."

As economists see Georgia's milk market, the situation looks gloomy for local farmers.

In dollar terms, milk imported from other states compares favorably with locally produced milk. Unless the slight differences in flavor and shelf life are benefits consumers are willing to pay extra for -- assuming they can make the distinction -- then retail cost is the primary consideration on which milk is purchased.

If milk is bought solely on the basis of price, Southeastern farmers could price themselves out of the market by forming a compact with an inflated price.

"There is a response to higher prices," warned Ms. Tipton. "The compact will artificially raise the price. It will hurt consumption."

The only functioning dairy compact in the United States is in New England, where retail prices rose immediately after the compact raised its price. As a result, shoppers cut back on the milk they bought and switched to other beverages.

Georgia farmers dismiss the New England price increase as a political move by merchants and processing companies in an attempt to force the compact there to reduce the minimum price.

But they also worry privately that consumers here will indeed punish them by substituting other products for milk.

Loss of sales spooks the processing companies as well.

So much so that they hired a lobbying firm to fight compact supporters in the capitols in Atlanta and Washington -- so far successfully.

Farmers may get some relief, though, through a measure on November's ballot to amend the Georgia Constitution so livestock and crops will be exempt from property taxes.

The Georgia Family Farm Alliance, which was organized to campaign for the amendment, claims collecting the $2.5 million tax costs nearly as much as it brings in.

As cloudy as the skies may seem above Georgia dairy farms, 450 families persist.

Over a cup of coffee in the kitchen at Rucks' Dairy, Mr. Rucks and his wife, Dorothy, add to the list of obstacles that range beyond prices, to include regulations on their wetlands to what veterinary medicines they can treat their cows with.

"At the same time, dairy farmers are the most optimistic people I know," said Mrs. Rucks. "You have to be."