Wednesday, December 20, 2006

Why Do Farmers Like To Swim?

The title's a smartass way of leading into a subject raised by the recent discussion of the Post's article on dairy. What's the subject--why dairy farmers and others like pools or cartels.

Imagine you're a dairy farmer. Twice a day [warning--this is based on information 50 years old] you milk your cows and put the milk in the cooled storage tank. You know the milk truck has to come to empty the tank, because the cows have to be milked or they'll go dry and there's no way to use the milk on your farm. You can't store it. You have to sell it or dump it.

Who do you sell it to--your local processor. Maybe you have a choice; maybe there are two processors within driving range. But even if you have a choice, you can't auction your milk off daily or weekly to the highest bidder. The processor will take all the milk you produce, knowing that cows produce soon more after calving than 6 months after, that quantity can vary by time of year (though I suspect less so now than 50 years ago when most cows still calved in the spring). So you choose your processor once and change very seldom.

The bottom line is that you've no leverage, no market power. Your processor doesn't have much more. If there's more milk than can be sold as fluid, it can be processed into butter, cheese, or powdered milk. That permits a temporary surplus to be stored.

So what do you do if you've no market power--you combine. It's a time-honored American tradition, whether it's a farmers cooperative, a labor union, an oil trust, or a steel cartel. You get yourselves together to pursue your common self-interest. That's why dairy farmers swim.

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