Whatcom dairy farms among most productive

 

June is Dairy Month, but Whatcom County dairy farmers are too busy, as usual, to break out the party hats.

The county’s dairy farms have a challenging season ahead.

Prices will be fair to weak. Regulatory issues will continue to eat at the bottom line.

Product dumping by foreign producers will increase.

All these problems and more concern the $200 million dairy industry in Whatcom County, the 10th largest dairy-producing region in the country.

Still, as Larry Stap surveys his Lynden-area farm, its 250 Jersey cows, its 270 acres planted in feed crops, his wife, the kids who still help out and the year ahead, things could be worse.

“Prices won’t be as good as last year, but better than the year before,” says Stap who is currently vice president of the Northwest Dairy Association.

 

Lynden economy challenged

This means that the streets of Lynden, lined with its quaint, Dutch-themed buildings, will be sporting fewer new pickup trucks and Lincoln Town cars this year. Lynden, though just under 10,000 in population, is the center of Whatcom County’s dairy industry.

Third and fourth generation descendants of the town’s Dutch pioneers run many of today’s dairy farms in the area.

For Stap and others in the dairy community the big issues this year, as in most, are milk product pricing and environmental regulation. Last year’s higher prices enabled him to pay down a large portion of his debt before the Twin Towers tragedy on Sept.11 convulsed the commodities markets.

Consumer spending almost immediately plummeted. Fewer customers at America’s restaurants translated into drastic drops in prices for dairy and meat products. The recovery has begun, but at a slow pace.

Stap figures that this year’s lower prices will have him dipping into his line of credit to keep going.

 

Price supports questioned

Whatcom dairy operators intently followed the debate on this year’s farm bill as it made its way through Congress. After a month of grueling conference committee negotiations, the bill, with its milk price supports, was sent to President Bush, who signed it into law on May 13.

Free market purists decried the new, higher levels of subsidy for several key agricultural sectors. But for many in the dairy industry, the support system is an important buffer from annual price swings that wreak economic havoc on dairying communities.

Jay Gordon, executive director of the Washington State Dairy Federation, says the milk price supports contained in the farm bill mean $10,000 to $12,000 in extra income for the average Washington dairy farm this year. The dairy support provisions of the bill translate roughly into a price floor of about 90 cents per pound.

“Western dairy farmers have really mixed feelings about the bill,” said Gordon.

He said most would prefer to have an unsubsidized, free market. But the dumping practice of some European countries continues to pressure the commodities markets and, without the price support system, more American dairies would be out of business.

The large European surpluses that are marketed abroad at bargain basement prices are largely due to heavy subsidies that appear to violate the General Agreement on Tariffs and Trade (GATT). While U.S. producers have filed complaints with the World Trade Organization about the dumping, the WTO process grinds slowly and the issue could take years to resolve.

“We are non-competitive on the world market,” said Gordon, who blames primarily cheap foreign imports of powdered milk.

Powdered milk is the hub of the milk business in Whatcom County’s Nooksak Valley, whose dairies out-produce much of the country on a per cow basis. The Darigold plant in Lynden is the country’s Number One producer of powdered milk and can process up to four million pounds of milk a day.

 

Lynden cows among most productive

Dan McBride, a market analyst for Darigold, says that nearly all of the 1.37 billion (CQ B) pounds of milk produced in Whatcom County last year were processed as powdered milk at the Lynden plant. All that by no more than 200 dairies, down from nearly 400 a decade ago. He said that in 1990 the county had 387 dairies producing one billion pounds of milk.

So rich is Whatcom County’s dairy production, says McBride, that “25 percent of the milk in the state is being produced by the two percent of the producers.”

Casey Lankhaar, another Lynden-area dairyman, says that although the number of producers has dropped by about half in the past 10 years the total number of cows in the county remains about the same.

Lankhaar is also a member of Washington’s Beef Commission, representing the dairy industry’s interest in selling its cull cows and steers into the beef market. Like most of his fellow dairymen, Lankhaar was enjoying a fair year, pricewise, until “9-11.”

“You could see the significant drop in beef sales,” he said, as Americans cut back on visits to their favorite restaurants. The market is only recently showing signs of recovery, he said.

As for the issue of foreign dumping of dairy products on the American market, Lankhaar has a somewhat sympathetic take on the European mindset. He thinks he understands why the Europeans heavily subsidize their own agricultural producers.

“Those people really suffered during World War II because of the lack of food,” he said. “They are determined that it won’t happen again.”

 

Dairymen: milk production is strategic

Lankhaar wishes that Americans would view their own farm sector as just as strategic an industry as oil or steel.

He follows the commodity futures markets in powdered milk, butter and cheese for his clues for price behavior several months out. He said it appears that prices will remain fairly low but may improve in the fall.

Rod DeJong agrees with that analysis. His Lynden-area dairy has some 900 cows, with 600 acres for growing feed.

“The futures markets are not very optimistic right now, but there is an upward trend,” he said.

DeJong, the current chairman of the Northwest Darigold board, remains upbeat about the future of dairying in Whatcom County. He acknowledges that some dairy operators have moved out of the area, if not out of business altogether.

Some have moved to eastern Washington, Idaho or Oregon, attracted by cheaper land and a drier climate that makes “nutrient management” easier to handle.

But DeJong points out that while Western Washington dairy operators face greater challenges in managing their manure runoff in the face of heavier rainfall, the milder marine climate is ideal for milk production.

 

Concern for the environment

Managing the stream-polluting runoff from dairy farms in an area that gets 45-60 inches of rain per year has been a major, expensive problem for the industry. Several years ago, the state began to crack down on farmers who allowed their manure-laden runoff to flow into streams, many of which became choked with algae, which use up the oxygen in the water, killing spawning fish.

DeJong acknowledges that dairy runoff had become a serious problem, but says that a few irresponsible operators gave the industry as a whole a bad name.

He is proud that Whatcom dairy operators took the lead in tackling the runoff problem and today most streams are testing at much lower nutrient levels.

He said the area’s shellfish fishery, long closed because of the fecal contamination of the shoreline, is about to reopen because of the gains made in controlling dairy runoff.

“Sometimes farmers are treated like they don’t care about the land,” says DeJong. “But we are environmentalists, too.”

For Larry Stap caring for the land is an intregal part of his religious beliefs.

“I believe that I’m here to be a steward of the land that the Lord gave us to care for,” he said.

 

International issues challenge Whatcom County dairy industry

Goverments cause problems in NAFTA, GATT and WTO

 

An important key to the future growth of the dairy industry is in the promise and the challenge of the export market. The American dairy industry, after lagging for decades behind other dairy exporting countries, has only begun to tap the vast potential of foreign markets.

U.S. diary exports have been steadily increasing and last year exceeded $1.16 billion, an increase of $96 million over the year 2000, according to the U.S. Diary Export Council.

“Over the last several years, U.S. diary exporters have successfully expanded their customer bases and developed new markets for dairy ingredients and a host of consumer products, from shredded cheeses for food service to retail cartons of ice cream,” says Tom Suber, president of the export council. “Last year’s gains are particularly impressive in light of the soft global economy, strong U.S. dollar, tight domestic supplies, and security concerns that could have undermined individual corporate activities.”

The council said that last year’s export increases were driven largely by continued growth in high-value, commercial products like cheese, lactose, whey protein concentrate and ice cream. Mexico, Japan, Southeast Asia, Canada and China remain the major overseas customers for U.S. dairy products.

Ralph Dutrow, head of the U.S. Foreign Agricultural Service’s dairy section, points to the North American Fair Trade Agreement (NAFTA) and the General Agreement on Trade and Tariffs (GATT) as the two most important developments favoring growth of American dairy exports.

“NAFTA sets the stage for what will ultimately be open access for U.S. dairy exporters to Mexico, in most years one of the largest—if not the largest—dairy-importing countries in the world,” Dutrow wrote last year. “ Mexico is only about 70 percent self-sufficient in dairy production, implying a tremendous need for a wide variety of dairy product imports. Combined with U.S. proximity to Mexico, NAFTA has already proven to be a boon to the U.S. dairy industry.”

Why hasn’t the American dairy industry been more export-oriented in the past? The high moisture content and perishability of many dairy products and the large U.S. domestic market explain part of it, but not all, Dutrow writes:

“By way of contrast, New Zealand, a country that’s virtually cow heaven, has approximately one-third the number of milk cows yet only approximately 1.5 percent as many people as the United States. With this relatively small domestic market balanced against such hefty production, New Zealand thus exports 90 percent or more of its dairy output.”

Another reason for the slow development of the export market for U.S. dairy products is the sheer size of the domestic market. But as dairy productivity rises with the saturation of the domestic market, exports hold out the greatest promise for the continued prosperity of the dairy industry.

It is ironic that a dispute between the U.S. and Canada – partners in NAFTA – had to go to the World Trade Organization for resolution. The WTO is to hand down its decision this month as to whether Canadian mechanisms for support of its dairy exports constitute an unfair subsidy under GATT. The U.S. complaint, joined by New Zealand, has been deliberated by a WTO panel since 1999.

The panel issued a ruling last July that found in favor of the U.S. and New Zealand, but Canada moved for reconsideration and the panel decided that it needed more facts before issuing a final ruling, due this month.

The U.S. complaint notes that the alleged Canadian export subsidies are costing the American dairy industry some $35 million a year.

The United States Dairy Export Council says that the American industry produces 50 percent more whey and twice as much lactose as the domestic market can absorb, making continued expansion of export markets crucial to preventing a serious domestic surplus in milk solids.