Good morning, my name is James Vanblarcom, and I am a dairy producer from Northeastern Pennsylvania in Bradford County. My family and I manage a one hundred cow dairy that we have owned and operated since 1974. I'm also very actively involved in agricultural leadership responsibilities off the farm serving as President of the Bradford /Sullivan County Farm Bureau, and I am a member of Pennsylvania Farm Bureau's State Dairy Committee. I want to thank the Committee for providing the opportunity for me to give you a brief Pennsylvania producer's perspective on how national dairy policy has been effecting my operation and the Pennsylvania dairy industry as a whole.
Agriculture is Pennsylvania's leading industry and dairy is the leading segment of that industry. The economic impact of the Pennsylvania dairy industry is huge. The total value of milk produced in the state amounted to 1.73 billion dollars in 1998. We are the fourth leading dairy producing state in the nation. While Pennsylvania's dairy industry continues to maintain a slow rate of growth in total milk production through greater producer efficiencies, our dairy farm numbers, cow numbers, and total market share of the nation's dairy production continues to shrink. We have approximately 9,900 dairy farms in Pennsylvania producing 10.8 billion pounds of milk. The trend in consolidation of dairy producers has been consistently reducing dairy farm numbers 300-500, or more, per year for the past decade. In fact, about 30 percent of the state's dairy farmers have gone out of existence in the decade of the nineties. At the same time the average Pennsylvania dairymen has increased milk production per cow about twenty-percent.
I began as a dairy producer at a time when technological advances in production agriculture began to push productivity of individual farmers to levels never imagined. Dairy farmers knew about what the price of milk was going to be not only next month, but even next year. Our milk prices were held steady by a government support price that bought dairy products when inventories were high and sold when inventories were low. Meanwhile, producers like myself continued to adopt new technology and management skills that produced milk more efficiently. As production levels rose along with production costs, federal dairy policy provided us with even higher support levels until government purchases grew well beyond manageable levels. Media attention to the issue aroused tax payer's concerns. That brought a change in federal dairy policy that has had a profound effect on every dairy producer in the nation.
Since that time, federal dairy policy has driven the industry much closer to milk prices being established by national marketing conditions. The difference this has made in my dairy operation overall has been dramatic and many times even traumatic. Milk price volatility has made maintaining an economically viable operation a real challenge. Price swings of thirty to forty-percent from one month to the next have become common in the past few years. I challenge anyone to run a business with the level of volatility dairy producers have been experiencing in the price they receive for their product. Current milk marketing conditions are likely to keep producer prices low through most of this year and possibly longer.
My brother who farms next door operates a 120 cow dairy. We share farm equipment and labor during planting and harvesting seasons. In this cooperative effort, we cut our expenses. We are both hard working, experienced, and knowledgeable dairy producers. My brother and I are ranked third and fourth in milk production per cow in Bradford County, which is the third largest milk producing county in the state. Even with our best management practices, stockholders would view our present dairy operations as a poor investment due to the lack of financial performance. I have three children, all of which have some varying interest in agriculture. They have witnessed the struggle and the unpredictability of the dairy industry firsthand. Under present conditions, I would understand their decision not to pursue dairy farming as a career.
Federal milk marketing orders are designed to protect minimum prices for producers that will provide for a reliable and fresh supply of milk for the consumer. If the current pricing system and trends continue into the future, we can not count on a reliable fresh supply of milk in all areas of the United States.
The dairymen in the Northeast and upper Midwest are slowly losing their ability to compete. Milk production is shifting to the West, ( see chart # 1 regional milk production). This chart shows that the percentage of milk produced in the Southwest, West and California has more than doubled from 1970 to 1997. Southwestern dairymen have lower costs due to their ability to store feed and house animals outside. Many areas of the Southwest use taxpayer subsidized water supplies for irrigating animal feed crops and watering cattle. Traditional dairy areas need more expensive buildings for feed and cows. This shift to the West will eventually deplete our dairy industry in Pennsylvania to a level where it can not adequately supply fresh milk to consumers in the North and Northeast. There will still be plenty of milk but not in the right location.
The trends of westward and larger dairies would be all well and good, if your only need is cheap milk. However numerous consumer concerns come to mind. They are the environmental issues created by very large dairies and future competition for water in the and western areas. Also an issue, the lack of milk producers in proximity to high population centers of the North and Northeast. Over 2 5 % of the United States' population live within a three or four hour truck drive of New York and Pennsylvania dairy farms. Just imagine how today's diesel fuel prices would affect the cost of California milk in New York City.
The dairy industry in Pennsylvania, New York, and Wisconsin are the agricultural backbone of each state. Dairy farms provide hundreds of million of dollars to the economic activity to each state. The loss of these farms will be felt in the rural, urban and metro areas and all of the governing taxing bodies within the region.
Tourism depends on dairy farms in many areas for the beauty and tranquillity of cows grazing, open fields, rows of corn and farmsteads. When dairy farms fail many times they are sub divided into small plots or large home lots which can never again contribute to the production of food or enhance tourism. Many areas of this region are ideally suited to the dairy cow. Climate is right and milk can be produced in a environmentally safe manner. A dairy cows diet contains a high percentage of forages and other food processing byproducts, which can not be used for human consumption. These forages are grown in soils that many times can not produce human consumable crops profitably.
The world now has six billion people. In the future when the food process system is straining to keep up with our needs for weather, disease, or political reasons, the consumers of this region will be thankful for our dairy farms. That is if we have the foresight to save our dairy farms. Today many people take their food supply for granted because it has always been there. Will it always be there?
I am sure this committee is concerned about nutritional issues as well. Chart #2 will remind you of the quality of this product. This chart compares two of the common beverages that Americans drink. Federal nutritional policies should help encourage higher milk Consumption, particularly in our schools.
What dairy policy changes can be made to address the current challenges I as well as other producers face? First, let me say thank you as a producer for the action that was taken by Congress last year to address producer concerns with the federal milk marketing order reforms. With the positive action taken on Option 1a Class I milk pricing differentials and extension of milk price supports for another year at the current level, combined with component pricing that allows the higher of Class III or IV to be used for the Class I price mover, we have avoided an even more disastrous scenario on producer prices than we are already experiencing.
Pennsylvania has a state milk pricing agency that establishes minimum producer, wholesale and retail prices. While the Pennsylvania Milk Marketing Board has been able to provide an over-order premium at various levels on Class I milk to help address producer price needs, the benefit to many of Pennsylvania's producers, including myself, has been very limited by interstate commerce law and the lack of market-wide distribution of the premium to producers. Dairymen have lost twenty, percent of their share of the retail dollar since 1980, ( see chart # 3). I believe a regional approach to milk pricing is a better method of helping to stabilize producer prices and address producer price needs affected by local marketing conditions. If properly administered, we now know dairy compact pricing can bring benefits to producers at little, if any, cost to consumers, and with no impact on national marketing conditions. It is my understanding that you have heard, or will hear testimony regarding the positive impact the Northeast Dairy Compact has had on dairy producers in that region, while having no impact on the rest of the industry. I believe future national dairy policy should allow for the expansion of dairy compacts.
It is also imperative that Congress support continuation of the milk price support program at its current level. This level helps maintain a floor on producer prices, but at a level far below any level that would stimulate over-production. As we meet here today, producer prices are touching that floor price. I suspect some government purchases will be made before we get through the current marketing conditions. However, the last report I read indicated there were no government purchases of cheese to date, even though prices are at the support level. Without some safety-net for producer prices, I believe we will needlessly lose many dairy producers who will be needed to provide adequate milk supplies when the productivity climate is not as favorable.
Anything that can be done to provide better safety-nets for dairy producers without significantly distorting the national marketplace and the potential for the international marketplace should be done. However, as long as the European Union continues to subsidize their export markets we cannot afford to unilaterally disarm our dairy producers against subsidization of export markets. The Dairy Export Incentive Program should be fully funded to help maintain our presence in the international marketplace.
Revenue insurance products should be developed for dairy producers. Current pilot gross revenue insurance programs disqualify producers who have greater than 35 percent of there gross income coming from livestock. That needs to change! Some would point to dairy options on milk pricing futures as method of providing revenue insurance for dairy producers. Unfortunately, this market is off to a slow start with little trading activity, especially in this time of depressed milk prices. It will take time for this risk management tool to mature into a viable option, but nonetheless I hope it succeeds.
Tax free savings provisions for farmers would be an excellent tool to provide dairy producers a better way to manage price volatility. Farm and Ranch Risk Management Accounts (FARRM) were passed by Congress in the tax cut package that the President vetoed last year. FARRM accounts would encourage producers to save money during a year of higher milk prices to be used in times of lower milk prices. Current tax provisions only encourage producers to spend money when they make it to avoid paying taxes, and then we have no liquid assets when leaner times come along. We need immediate, complete, retroactive, deductibility of heath insurance for family farms. We are about half through a seven year phase in program. I paid $5,071 for health insurance and only about half is tax deductible. Of course, the other tax provisions contained in last years package, which included the estate tax elimination and capitol gains reductions, would greatly benefit the future of the dairy industry.