March 1999

In order to restore fairness to how dairy farmers are paid for their milk, farmers are recommending that volume premiums paid to them be returned to a fairer level of distribution between large-scale operations and family farms, according to a group of farm and consumer organizations working on the issue. Volume premiums are added to the farmers’ base milk price according to the amount of milk produced, the organizations explained. State law prior to 1994 banned processors from paying volume premiums.

The more milk produced, the higher the premium which means 40-cow to 150-cow farms get between $200 to $8,000 in annual premiums compared to $85,000 to $250,000 premiums paid to large-scale operations of 500 to 1,000 cows, the groups said. (See Volume Premium Chart.) "These high volume premiums are paid at the expense of mid and small-sized farmers who are going out of business at the rate of three per day in Minnesota due to unstable milk prices," said Jeff Kunstleben, Minnesota COACT dairy farmer and president of the Minnesota Dairy Producers Board which is part of the working group. Other organizations in the working group are Minnesota Farmers Union, Land Stewardship Project, Farmers’ Legal Action Group, and Minnesota Senior Federation.

"High volume premiums tend to keep the base price lower for all farmers," Kunstleben said. "The recently announced $6 drop in the Basic Forumla Price highlights the injustice of volume premiums because they make the free market unfair by eliminating equal competition among all farmers. Therefore, farmers are recommending a resolution to their local dairy co-ops calling for a working legal standard that is cost justified at $.30 per hundredweight (cwt) of milk," he said.

Farmers are urged to bring the "Resolution For Volume Premium Equity" (on the following page) to their co-op boards to sign and send to their processors. There’s 46 local co-ops in the state and seven processors that pay the farmers’ pay price and premiums.

"We need all our co-ops to sign and deliver the resolution to the seven processors, and then all the processors need to set the premium at $.30/cwt," Kunstleben explained. "Otherwise, if only one or a few processors don’t set the $.30 premium, the others will lose business and be forced back to the high premiums," he said.

Currently, the hundredweight premium ranges from about $.03 to $.30 for 40-cow to 150-cow farms compared to about $.95 to $1 for 500-cow to 1,000-cow operations, according to premium data cited by the working group. Thirty cents is also the highest average savings a processor can gain by paying high premiums to large-scale operations, according to a recent Wisconsin Agriculture Department survey. Minnesota co-ops passing the $.30/cwt resolution will then recommend that level to the state’s processors for them to voluntarily set across the board, they said.

Because most of the milk produced in Minnesota is by dairy farms of 100 cows or less, restoring fairness to the distribution of premiums will help save the broad base of mid and small-sized farmers which the processors depend upon for a steady milk supply, the groups said. The average dairy farm is 63 cows, according to Minnesota Agricultural Statistics, so most of the state’s 8,800 farmers are already getting less than $.30 premiums. "Evening out the volume premiums at $.30 will allow all farmers to compete fairly in the market place," Kunstleben said. "Hopefully, this will help check the loss of members from local co-ops, so they can stay in business and provide a reliable supply of milk to processors and consumers. Everyone in the dairy industry wins by making premiums fair again," he concluded.

Minnesota Food Association, Family Dairies USA, and National Farmers Organization also comprise the Minnesota Dairy Producers Board in addition to Minnesota Farmers Union, Minnesota COACT, and Minnesota Senior Federation. Along with the Land Stewardship Project and the Farmers’ Legal Action Group, this gives the $.30 volume premium resolution one of the broadest bases of farmer and consumer support of any issue in the state.