The region's largest dairy cooperative will impose a new pricing system in January in an effort to curb excess milk production.
The Agri-Mark dairy co-op says that, starting in January, its 875 members will make less money if they produce too much milk. The Massachusetts-based Agri-Mark has about 170 farms in Vermont.
This new supply management system will establish a base production level for farmers calculated on their highest level of milk sold over the last three years.
Co-op spokesman Doug DiMento said if producers exceed that base, they'll pay a penalty.
"If you go over the base there's a $5 per hundredweight penalty — which is a, you know, stiff penalty," DiMento said. "It's designed to just slow down milk production, not totally stop it, but just slow down the growth so it can be at a manageable level."
Agri-Mark told its members about the plan in a letter sent earlier this month. The co-op said its farmers are continuing to increase milk production while demand for their product regionally has slowed. This overproduction, the co-op said, is causing financial strain.
According to the letter from Agri-Mark:
"The co-op profit is barely above the breakeven point through August as we have experienced significant losses on excess milk and the downturn in world trade, especially on whey products, continues to create losses in this area."
The letter went on to add:
"We are at the point now where we can’t allow our members to grow without some type of supply management program."
Farmers who produce 2 million pounds of milk or less a year are exempt from the program. That equates roughly to a farm with 100 milking cows, considered small by modern standards.
DiMento said the board and co-op management discussed how best to curb production for months.
"We've been struggling the last several years trying to handle all this excess milk," DiMento said. "So looking for the long-term health of the co-op, the board decided to kind of put a brake on member production. It was the best idea.”
The dairy industry has long debated supply management systems that are aimed at matching milk supply with customer demand. Now momentum seems to building, at least in the region. Earlier this year, the Vermont Milk Commission endorsed supply management as a way to improve prices.
Meanwhile, DiMento said prices paid to farmers are expected to improve next year, but not enough to lift many farms out of the financial trouble that has forced dozens of Vermont farms to go out of business in recent years.
He said prices should rebound to about $19 for 100 pounds of milk sold at wholesale.
"That is going to be some relief, but it is still below the cost of production for most farmers in the region," DiMento said. "So we're still looking for ways to try to increase prices and develop better markets, and hopefully something can happen over the next several months."