Hard times for N.J. dairy farmers

Under a dilapidated farm building in Gloucester County, Owen Pool tugs at his sweat-stained "Got Milk?" cap, stretches out his bad knee, and tries to make sense of the dairy industry.

Pool says he's losing money every time he milks a cow, thanks to a bewildering mix of circumstances that includes a U.S. cheese surplus, the decline of consumer demand in China, and the lack of precipitation in Australia last year.

"I talk to this economist in D.C., to try and stay on top of things," said the 71-year-old dairy farmer. "The way they price milk is so complicated the average farmer has no idea what's going on. I'm probably one of the most knowledgeable. And I don't understand it entirely."

As the base rate the federal government sets for milk fell below 1980 levels last year - despite the fact that a gallon of milk at the supermarket costs more than three times what it did then - dairy farmers across the country have taken historic losses and in many cases are going out of business.

The situation is especially acute in New Jersey, where the combination of a lack of state price supports and some of the highest costs of business of any farming region in the country means dairy farmers are being hit especially hard.

There are now 93 dairy farms in New Jersey, a 39 percent decrease from three years ago, according to the New Jersey Department of Agriculture.

"They're broke. It's just not good at all," said David Lee, an agriculture professor at Rutgers University who works with dairy farmers in implementing new techniques. "New Jersey is in the middle of the biggest market in the country, and our prices aren't significantly different from other places. It needs to be reevaluated, but dairy is not [the federal government's] priority right now."

The state Agriculture Department is finishing up a four-month series of hearings to try to find a way to keep the farmers in business. Though the findings are months off, there is uncertainty about how much the state body can actually do because the federal government controls milk prices in New Jersey, as opposed to states such as Pennsylvania where, there is a milk board that attaches a mandatory premium to the federal base rate.

Hanging over the hearings is the growing gap between what dairy farmers earn and what dairy products are sold for at stores.

As an example, the gap between what a New Jersey farmer earns on a gallon of milk and what a retailer in the state sells it for increased by 68 percent from 1997 to 2009, according to an analysis of federal data.

"It seems like the processors and the retailers are manipulating the prices. Supply and demand has nothing to do with it," said Joe Doak, a dairy farmer in Salem County. "I've been to I don't know how many of these hearings, and nothing ever changes. It's baloney."

Between the farmers and the consumer are a series of middlemen that include dairy processors, shipping companies, retailers, and farming cooperatives.

With each step in the chain comes additional costs, but the degree to which some entities are profiting while farmers are going out of business is gaining attention.

In November, U.S. Sen. Charles E. Schumer (D., N.Y.) announced that the federal Department of Justice would investigate the dairy industry.

In that announcement, the senator made allegations of anticompetitive practices by large dairy processors including Dean Foods, a Dallas company whose profits more than doubled from 2008 to 2009. Dean handles 70 percent of the milk sold in North Jersey, according to Schumer's office.

In a separate case, federal prosecutors filed an antitrust lawsuit against Dean in January for its purchase of a Midwest dairy cooperative.

The company is fighting the suit and says the acquisition complied with federal antitrust laws.

Bob Yonkers, chief economist for the International Dairy Foods Association, a trade group representing dairy-processing companies, said the growing gap between farmer's prices and retail prices was in part reflective of the increasing costs that processors are bearing.

"Everything other than the price of milk is going up. Energy costs are up, and this is a very energy-intensive business. Transportation costs are up. Health-care costs. It all factors in," he said. "And we don't set what retailers sell milk for."

The question is how much longer dairy farmers in New Jersey can hold on.

Though prices have rebounded somewhat since last year's lows, farmers are still taking losses of varying degrees on the milk they produce.

For some, like Doak, who took out a $250,000 loan in late 2008 to buy a robotic milker, getting out of the business is not an option.

"I have monthly payments of $3,000 for the next seven years to pay that off," he said. "If it wasn't for that, I'd have got out last March."

Dairy farming in New Jersey has been on the decline for decades, with milk production dropping from almost 1.2 billion pounds in 1960 to 161 million pounds in 2009, according to the U.S. Department of Agriculture.

One segment of dairy farming that has had some recent success - at least until the current recession - was organic and artisanal products that sell at a premium. Lee has talked to farmers about making the switch but has met with little enthusiasm.

"Down here they're more commercially minded. Change is slow in agriculture," he said.

Pool, whose great-grandfather started the farm in 1870 after immigrating from Germany, has no plans to go organic.

His plan at this point is simple survival, to hold on long enough to sell the farm to his lone employee, Bryant Rathbone, 20, who started working on the farm as a summer job in high school and never left.

Rathbone is unsure. He likes the work but has watched his boss struggle with falling prices over the last year and feels understandably tentative.

"We talk about it. I'd have sold off the cows already if it wasn't for him," Pool said. "But I want to make sure he goes in with his eyes open."