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MILK PRICE NEWS A publication of the Minnesota Dairy Producers Board 123 1/2 E. Broadway, Little Falls, MN 56345, 320-632-5867 or 616-5847Large-scale operations bypass local businesses |
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DECEMBER 1998 |
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| A long standing economic principle of
industry is achieving efficiency and maximizing profit through the use
of make allowances, subsidies, rebates, kickbacks, and volume premiums
which strangles competition.
Giving monetary advantage to the subsidized entity, through these practices, does not allow the non-subsidized entity to compete in a fair and equal market place. Over time, the nonsubsidized entity will be liquidated. As volume premiums flow more generously from co-ops to large-scale dairy operations, co-op members are asking if this practice, along with other industry practices, is helping to centralize milk production in the state, according to farm groups on the Minnesota Dairy Producers Board. If production is centralized in large-scale operations, there’s less need for the rest of the production side of the industry-- mid-sized and smaller operations--which will shut down, they say. They further question the economic wisdom of a minority of large-scale operations being financed by the majority of mid-sized and small co-op members who are trying to survive under unstable milk prices and rising production costs. The loss of these core producers is eroding the co-op membership base and weakening the rural economy because farmers provide one of the highest levels of revenue to local businesses. |
How high are the
volume premiums rising?
In just four years, the top volume premiums paid to operations of over 500 cows soared 60% from $.40/cwt to $1/ cwt while small and mid-sized farms now receive only $.03 to $.30. This amounts to only $200 to $8,000 annual premiums paid to 40-cow to 150-cow farms compared to $85,000 to $500,000 paid to 500-cow to 2000-cow operations. (See the rate sheet on page 3.) A 1,000-cow operation now is paid a premium of $250,000 per year, while many 50-cow farms still get only $300. Such diversion of co-op equity is preventing most members from being paid the full value for their milk, the farm groups said. Are premiums deciding who will be producers? As the inequity in premiums widens, the number of large operations rises while the count of family farms declines. A 63-cow farm is the average size in Minnesota, and most milk produced in the state is from farms with 99 cows or less. However, production from these herds has decreased from 80.6% in 1994 to 66% in 1997 as the number of large- scale operations has risen, according to Minnesota Agricultural Statistics. Sixteen 60-cow farms are displaced with the addition of every 1000-cow operation.
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