Paynesville Press - January 15, 2003

Community Perspective

Ways to save the small family farm

By LeRoy Schlangen

I have been milking cows since 1956 and have recently sold out. Dairying was good to me. The reason I survived dairying was because I worked hard, long hours and efficiently and was fortunate to remain in good health and worked hard to get my debt down.

I remember well when President John Kennedy raised the milk support price by instituting the school lunch program and purchasing cheese, butter, and dry milk powder for storage. Milk prices stabilized to around $3.25 cwt. (equivalent to $19.50 in today's CPI). Prices began to climb and reached $4 by 1969 and reached $4.75 in December 1969.

Many farmers then began to modernize. They got rid of pigs and chickens, and they put in barn cleaners, silo unloaders, and pipe lines and tripled their dairy operations. But other farmers quit dairying and many expanded in (either) hogs and (or) chickens.

That road became very bumpy as prices greatly fluctuated and many producers left. Many chicken producers began to contract and by the 1970s almost all were contracting, and we thus saw huge chicken barns being built, made possible by adopting the latest technology and automation.

Hog prices began to rise in 1965 and were relatively good through 1978, with the exception of 1973 when the bottom had fallen out and 1974 when feed prices skyrocketed. Many had quit raising hogs in the early 1960s because of relatively low and fluctuating prices and were reluctant to re-enter. The shock in 1973 kept many out. But by 1978 many farmers had expanded and we were reading of huge hog operations. More farmers entered or expanded and hog prices fell in 1979, and they have been a roller coaster ever since. Hog prices began to stabilize by 1990 with greater use of contracts but were relatively low and many smaller producers quit.

However prices began to inch upward in the mid-1990s; and, by 1997, we were reading articles that those who had their greatest returns in investments were those in the hog business. Thus many investors in the Midwest and Canada began investing in hogs and the hog prices collapsed by the end of 1998 to eight cents a pound.

Many have given up on hogs and prices have somewhat rebounded and have somewhat stabilized because of contracts. Many still say prices are barely sustainable.

Dairying continued relatively good during the 1970s. Many did exit because the hours were too long and demanding. I stayed in dairying because I enjoyed the work and the economics plus I always could find an hour or two for reading, writing, and volunteering. Also we worked together as family and thus could relate as a family.

Our son, however, felt the long hours were not for him and thus went to work in an industry where he is successful because he realizes the need for productivity.

A recent article in the St. Cloud Times stated: "Because many dairy farmers lack the clout to fight these low prices for the product, they instead learn to live with low prices (and) are doing without vacations and at times even without health care."

I want to recall the election of 1976. Jimmy Carter campaigned that we needed to increase farm prices to 85 percent parity because farmers deserve a decent income. He got elected. In 1977 we had an excellent crop year. Prices for corn dropped from $3 at harvest time in 1976 to $1.45 in 1977, which was at support price. Because we had good yields we broke even; and, some even made a little because of efficient use of machinery and because land prices were still relatively low.

However because of the campaign promises, support prices were raised to $1.90. Because costs were increasing and support prices were being set at the cost of production the support price kept on being raised.

Milk support prices increased, too, from $8 to $11 cwt. Now we were reading how good operators were making good money.

Many investors were now investing in agriculture. Another incentive, beside profits, was that there were enormous tax breaks available in agriculture. Land values escalated and production soared.

By 1980 things were getting out of hand and thus Ronald Reagan was elected. Costly incentives were initiated to curtail production because storage cost due to high interest was unmanageable.

Concerning dairying, in 1983, Congress came up with the diversion program to encourage supply management. This program only lasted for 15 months. Otherwise milk quotas would have acquired an enormous wealth as Canadian farmers have experienced.

By 1985 milk production again got out of hand and Congress thus initiated the dairy herd buyout paid for by a $0.50 assessment on all milk produced. It enabled many dairy producers to exit and thus the surplus was almost eliminated. The support price was reduced, frozen, and maintained to keep the prices from hitting unbearable lows.

Prices hit a low in 1991 and then recovered as many farmers quit. Prices have been fluctuating ever since.

I have often written that the only way we can save the family farm and other small businesses is to do away with giving tax breaks upon liquidation and, instead, give limited tax deferrals on income saved for investing. After hearing many complaints from those who quit after the 1986 tax simplification and reform act about how huge their tax bill was, I also wrote that one should be able to put a limited amount of gain into a tax deferred retirement account, especially if one didn't have much in that account.

Also because of what is now happening in the marketing of milk, we need an accounting of what prices are being paid, including all volume premiums and discounts. Also the cost of contracting has to be closely regulated so smaller producers have equal access to contracting.

I did a limited contracting with L.O.L. last year, and I compliment L.O.L. for making contracting available to small producers at a level playing field. It is too bad that they were so adamant in doing away with independent haulers; and, instead contracted with a major hauler for greater efficiency. It left us with a gut feeling that this will also happen with the small producers.

To set milk prices independent of supply and demand will not work, especially in saving the small dairy farmer. The only solution I have for saving small family dairies is that we contract as a group.

Also, as mentioned earlier, we have to give beginning workers an opportunity to save in a tax deferred investment account to enable one to have an adequate down payment so to be able to compete with large investors in acquiring ownership or a share in the ownership.

Concerning health care, instead of giving a tax deduction for health insurance (since it is not a break for those with little profit or income), the government should instead give a limited 50 percent tax credit of one's health care premium.

LeRoy Schlangen operated a dairy farm near Roscoe for over 45 years.

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