Udder Retort in Wall Street Journal

The Wall Street Journal published a letter today responding to my Dairy Cliff article.

Farmers perennially complain about losing money. Yet their net worth far exceeds that of the average American household.

Did I miss a Keynesian multiplier somewhere? Or is this another mystical triumph like the doctrine of parity?

Dairy Farmers Operating at a Loss

In response to James Bovard’s Dec. 31 op-ed “How the ‘Dairy Cliff’ Will Cream Consumers”:

Mr. Bovard speaks of the “concocted mystical concept called ‘parity'” and argues that it enables “wealthy farmers,” particularly dairy producers, to “gouge” taxpayers and consumers. There are statistics that refute his claim.

For example, there’s the Agriculture Department analysis of “Production Cost and Returns per Hundredweight Sold” for recent years, showing a loss of $7.50 for each hundredweight of raw milk shipped in 2009 and $3 loss in 2010.

It’s a long-running pattern, which explains why Cornell College of Agriculture in 2003 published a report on “The Future of American Agriculture” with this quote: “The shrinking net profits and return on investment make many agricultural enterprises unattractive or impossible for existing and new farmers.”

That fact explains why some 90% of farm household income is earned off-farm and subsidizes the sale of commodities at a loss so that urban consumers can have an unrealistic image of low milk price. Before such taxpayer subsidies to keep dairymen from quitting and causing (Harry Truman quote) “undue price increases to consumers” milk sold for $1 per gallon in 1950. Adjusted for inflation, that would be $8.35 today.

An Iowa State 2005 study by the Ag MRC Center observed that agriculture’s return-on-equity is “typically lower than . . . the 4%-6% return-on-assets” (caused entirely by inflationary acreage-value gains) and a consumer can go to Value Line for comparative nonfarm return-on-equity: 12% in food processing, 15% to 29% in retail (including supermarkets), 26% in household products and 19% in pharmacy.

Martin Harris

Jonesborough, Tenn.


4 Responses to Udder Retort in Wall Street Journal

  1. Richard A. January 9, 2013 at 12:39 pm #

    Would you happen to know if the world price for milk is different from the US domestic price?

  2. William Anderson January 9, 2013 at 12:50 pm #

    This is all very interesting. If, indeed, farmers are all (or nearly all) operating at such a loss, we then should ask: (1) How do they remain in business? and (2) Are we to assume that farm products are unique in that people cannot and will not pay the market price for them?

    As for the various studies the writer quotes, they definitely come from institutions and organizations that are tied closely to the modern farming “subsidy culture” in which participants have totally absorbed the mindset that farmers MUST have subsidies and protection of prices. They cannot imagine anything else, and their “research” demonstrates that way of thinking.

  3. Jim January 9, 2013 at 1:06 pm #

    Richard, the US govt is running a program to dump US products on the world dairy market – so I assume the US price is higher than prices elsewhere, else there would be no need to subsidize exports.

  4. Jim January 9, 2013 at 1:07 pm #

    Bill, USDA funding of state universities has done wonders to advance that “subsidy culture.” There are some ag economists who have done great work, but the federal funding has tilted the profession’s lens.