Wisconsin Dairy Farmers Are Struggling. An Agricultural Economist Explains Why
Wisconsin leads the nation in farm bankruptcies.
Gov. Tony Evers addressed the plight of dairy farmers in his State of the State address on Wednesday night. He's calling for a special session on Tuesday to take up a package of bills aimed to help farmers. The bills address challenges from exports to mental health support.
To help shed light on why Wisconsin dairy farmers are struggling, we spoke with Andrew Novakovic, a professor emeritus of agricultural economics at Cornell University.
Why are Wisconsin dairy farmers facing economic headwinds? Are the factors new or old?
"Part of this is an ongoing story that's been in some ways happening for decades and some part it's a much more recent story. There's been a long trend line of decline in the number of farms producing milk and an increase in the average size of farms that do produce milk, and that has been going on since the end of WWII," Novakovic explains.
He says the last five years haven't been the worst ever for farmers, "but the length and duration of below-average returns is just wearing people out. I call it the 'long scrape' as opposed to the 'deep cut.' "
What helped cause this "long scrape?"
Novakovic says the "long-scrape" has to do with changes on the production side and the demand side. About 10 years ago after the recession, he says there was an explosion of interest in using ethanol and fuels.
"That ethanol was derived from corn, and that created a huge new demand for corn," he says.
That was great for corn farmers, but not for dairy farmers.
"If you're a dairy farmer, you buy corn [as feed]. And that created an increase in cost that was really substantial. And it came at the time of the recession when demand was off. And this created a real turbulence and returns that took a while to work it out," Novakovic says.
About five years ago, he says dairy farmers were in an environment that encouraged production, resulting in overproduction. At the same time, he says people started getting into plant-based milk alternatives. He also cites a difficult trade environment with tariffs affecting the amount of money farmers make from trade.
"So you put all these things together, and we've kind of created a low price scenario that has been in place for the last few years. And we're just now starting to crawl out of that," he says.
How can farmers get out of the "long scrape?"
"Well, clearly, we need to reverse the two things that have got us into it. One is, we need to see some relief on the demand side, having better trade relationships would be important in that regard," Novakovic says. Also, he says farmers have to deal with concerns about animal agriculture and the reasons people are choosing plant-based beverages, yogurts and ice creams. He says that's an information challenge.
On the production side, Novakovic says farmers need supply chain coordination. That's a supply management technique that helps farmers avoid producing more than they need to.
"Frankly, agriculture in general and dairy hasn't been very good about that kind of coordination between production and consumption," he says. "But after the last few years, a lot more people are interested in talking about it."
What's the takeaway for farmers now?
"Every farm is in a slightly different situation, or maybe a dramatically different situation. There are some farmers who got through the last few years in pretty good shape. There's obviously a substantial number of farms that went out of business because they couldn't survive. And so every one of them has to look at it from their own perspective," he says.
If farmers are going to move forward, Novakovic says they have to do more than just survive a single bad year. They have to survive two or three years that don't look so good.
"That means things like adding more operating capital and reserve managing, inventorying feed a little bit differently, maybe taking more advantage of price risk management programs and things of that nature," he says. "It's by no means a simple challenge. But that's the kind of choices that farmers are gonna have to be thinking about."