Could a Supply Management Program Solve the Dairy Crisis in the U.S.?

Beginning around 2014, the U.S dairy industry entered a state of economic crisis. This most recent economic downturn is only the most recent iteration of a pattern that has plagued dairy farmers for decades. Today, five years after the onset of the crisis, it’s estimated that California (the nation’s largest producer of dairy) is losing about one dairy farm per week. Wisconsin, the next most abundant zone of production, could be losing as many as two dairy farms per day.

As experts in agriculture and ranch refinance, we get asked all the time: what does the future have in store for dairy farms across the United States? To answer that question, let’s first take a look at the root causes of the crisis, and then explore a popularly proposed solution.

What is Causing the Dairy Crisis?

What is the primary cause of this most recent dairy crisis in the U.S? At the end of the day, it can be traced back to the fundamental economic principle of supply and demand – producers responding to the price of the commodity being produced. When milk prices escalate, dairy farmers have been producing more milk to seize the economic opportunity. When prices have gone down, farmers have been producing more milk to compensate for their losses. In other words, farmers have simply been making too much milk, with disastrous consequences over the long run for the price of milk and the profitability of the dairy industry.

Some dairy farmers have been able to stay afloat with the help of farm loans. Others have been forced to shut down their operations.

How Could a Supply Management Program Help?

The U.S dairy industry is currently based upon the “get big or get out” model of production, where farmers are encouraged to produce as much as possible. Though effective in the short-term, this most recent dairy crisis is ample evidence that this model may not be sustainable in the long run.

Supply management, in contrast, is a program which is designed to stabilize the price of milk by limiting the milk that farmers put into the market. The system, which would be modeled after the supply management model introduced for similar purposes by the Canadians, shows great promise in its potential to reintroduce harmony and predictability to the U.S dairy industry.

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