Agricultural adversity

Posted on May 29, 2020 :: Insight Insider
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Posted by , Insight on Business Staff Writer

Many dairy farmers have been hit hard by the coronavirus crisis as end-user industries and organizations have been forced to shut down their operations for months.

That put a virtual stop to demand for bulk dairy items such as cheese for pizza and other restaurant meals, as well as goods such as small cartons of milk for schools and hospital cafeterias. It’s forced some farmers to take the step of having to dump their raw milk supply, and some have lost tens of thousands of dollars a month of income during the crisis.

It’s another blow to the industry that has already suffered during the past few years from depressed prices and changes in demand.

“2020 was to be the rebound year for dairy,” says Tim Trotter, executive director of the Green Bay-based Dairy Business Association and Edge Dairy Farmer Cooperative. “And then COVID hit, and I think this has been a major game changer, not only for dairy, but I think for all Wisconsin agriculture and all businesses in Wisconsin.”

While retail sales through grocery stores have actually increased, about 50 percent of U.S. cheese production goes directly into food service or companies that produce cheese products for that service, including restaurants and schools.

“Essentially, overnight, we saw that closed,” Trotter says.

Tyler Wenzlaff, director of government relations for the Wisconsin Farm Bureau Federation, says some farmers have been left with no choice but to dump milk or euthanize livestock during this unparalleled crisis because there’s nowhere to go with it.

“This is not something that our farmers take lightly,” Wenzlaff says. “We want to be part of the solution.”

In April, the U.S. Department of Agriculture announced a $19 billion relief plan — it was part of the CARES Act — to help farmers impacted by the COVID-19 crisis. The plan includes $16 billion in direct payments and a government purchase of $3 billion of produce, dairy and meat.

“That’s a great start,” Wenzlaff says. “We just need to make sure that the food that is purchased is moving to those that need it most.”

Avenues close

Kelly Oudenhoven, who manages a farm of about 350 Holsteins north of Freedom with her father-in-law, Larry, says their farm has been fortunate since it supplies to a cheese processor that makes retail food items for grocery stores. They have not yet had to dump milk during the crisis, but many of her colleagues — especially if they primarily supply the food service industry — are having a much different experience.

“We’re definitely counting our blessings, in the fact that it could be a lot worse,” Oudenhoven says. “It’s heartbreaking to see our fellow farmers going through the process of having to dump milk, and they don’t know how long they will have to do it. It’s just an array of emotions that we’re all going through right now.”

With restaurants closed to onsite dining during the crisis, owners had to decide whether to carry forward with takeout and delivery only or just stay closed. Either way, Oudenhoven says the demand seemed to drop all at once.

“We kind of knew (the virus) was out there, and you heard about it, and how bad it was in New York,” she says. “But then all of a sudden, it just seemed like a light switched off, and it was like everything just came to a halt.”

And the food service processors aren’t able to just switch abruptly, Oudenhoven says. “They’re packaging 10-pound bags of mozzarella to go to a pizza company. It’s hard for them to switch to making one-pound bags (for retail), because it also becomes a labeling logistical nightmare.”

In May, the USDA approved $1.2 billion (within the $3 billion of government purchase funds) to support the Farmers to Families Food Box Program, which allows distributors, processors and nonprofits to deliver food directly to people in need. That includes $317 million in contracts to purchase milk and other dairy items for Americans who need it.

“When we see those pictures of milk being disposed of, it’s because there is a gluttony of product right now that can’t be turned into what normally would be retailed,” Wenzlaff says. “We have an entire segment of our economy shut down, in terms of restaurants and schools. Processors are used to moving that product in a certain way.”

Additionally, the challenges for farmers from the COVID-19 crisis go beyond the lack of demand in the marketplace. For Oudenhoven, the school closings mean she is farming with four children under the age of 8 in tow.

“The baby would come with me every day to the farm; now they all come with me every day, and then we do homeschooling, and then we go back down to the barn for night chores,” she says. “Figuring that whole thing out is a little bit overwhelming.”

Lingering uncertainty

Dairy producers also are concerned about their workers and their ability to keep them safe, Trotter says. “Obviously, we need people to show up every day to milk the cows,” he says. “They don’t have a choice to not come in to work.”

The overarching concern is how long this crisis will last — as restrictions in Wisconsin are lifting, they’re still in place elsewhere, and no one knows what will happen with a potential second or even third wave of coronavirus outbreaks.

“We’re hoping that we will start to see a rebound soon (in business) here in the early summer, but there’s no guarantees of that. I think there’s just a lot of uncertainty, and it really shows its toll on farmers’ attitudes and morale,” Trotter says.

This was the year the dairy industry should have seen its fortunes begin to turn around, he says. The new U.S.-Mexico-Canada Agreement, leading to more free trade markets, had been signed. With Mexico as the largest export market, and trade issues resolved with Canada, the industry anticipated a boost.

Instead of seeing a rebound year, Trotter says the industry is facing a new kind of adversity. “We’re seeing the domestic use drop significantly. If you don’t see a growth in export markets and we see a shrink in the domestic market, that’s not a good scenario for dairy.”

As the majority of the cheese produced in Wisconsin is exported, the supply chain infrastructure has been stressed, to say the least, Trotter says.

“Farmers are very concerned. A lot of them have done a phenomenal job making it through to 2020. And, unfortunately, they’re looking at this as probably even the most challenging year they’ll ever see in their lifetime,” he says.

While some help is coming from the Small Business Administration’s Paycheck Protection Program and other assistance programs, they’re bandages, not a cure. “Those are going to help, I think, short term, but it’s not enough,” Trotter says. “When we’re looking at farmers selling milk for maybe 20 to 30 percent under their cost of production, how long can a farmer do that? I mean, just do the math.”

With one in eight families experiencing food insecurity, the industry is hoping more cheese can be directed to food banks, he says.

“What better way to get high-quality protein than cheese?” Trotter says. “We’re hoping that from a humanitarian standpoint, that the surplus could be used to help (our) neighbors who are really struggling.”

Farmers received another boost when in late May, Gov. Tony Evers announced the creation of the Wisconsin Farm Support Program, a $50 million investment to provide direct payments to Wisconsin farmers in support of the agricultural sector during the COVID-19 pandemic, and a $15 million food insecurity initiative to combat hunger in Wisconsin. Eligible farmers will be asked to apply for the aid through the Wisconsin Department of Revenue, which is working in collaboration with the Wisconsin Department of Agriculture, Trade, and Consumer Protection.

Even with the aid, the industry is aware of the possibility that the market may see a permanent change and will need to prepare for that adjustment. How that might look is the million-dollar question, Wenzlaff says.

“When that supply chain is compromised, we quickly run into problems,” Wenzlaff says. “So, will there be changes in how we receive our products in the future? And will there be changes in the grocery store? I think that’s what everybody, across not only agriculture but other industries, is examining. What is the new normal going to be?”

Missing breakfast

June is Dairy Month in Wisconsin and a time for counties to host their annual Breakfast on the Farm events. Sponsored by each county’s Dairy Promotion Committee, the breakfasts typically bring out thousands of visitors to eat a breakfast featuring eggs, bacon, pancakes, ice cream and more. Farmers offer tours to showcase their dairy operations and share nutritional information about dairy foods. For many guests, this is their first time on a farm. Wisconsin is one of a few states that holds annual events on its dairy farms.

Due to the COVID-19 pandemic, farm breakfasts across the state have been canceled. In addition to raising funds for each county’s Dairy Promotion Committee, the events provide an opportunity to promote Wisconsin’s dairy industry.