TIPPING POINTS, OR EVENTS OR CONDITIONS THAT LED TO CHANGES IN VERMONT AGRICULTURE OVER TIME AND THE DAIRY SECTOR TODAY

Vermont agriculture and land use related to farming has changed significantly over time.   What appears clear from this brief analysis of the past is that Vermont has never been immune to international and national events, or economic conditions elsewhere.  Through the years, farmers have had to adapt even when, in some cases, actions were taken by policy officials to forestall or prevent negative impacts. Today, it can be argued, Vermont agriculture continues to go through major transformations.  One of the most significant adaptations might be called a “renaissance of the past” with an increased interest in local foods.  This has resulted in the growth of farmers markets, CSA’s (community supported agriculture), artesian cheese production on farms, and other new enterprises.  (Diversified agriculture has always been an important part of the working landscape in Vermont).  Still, dairy farming is the anchor for Vermont’s agriculture and the many related support industries that exist in the State.  As this transformation continues to take place, we ask what is the likely future for dairy farming and what does the future hold for dairy cooperatives that market most of the milk? This transformational change continues to have an impact on the working landscape as it is known or perceived.

HISTORICAL CHANGES IN VERMONT AGRICULTURE

From the beginning of the early settlements after the French and Indian War in the region now known as Vermont, events and other economic influences have brought about changes in agriculture and land use.  The early settlers came to Vermont searching for new productive soils and opportunities.  While they were subsistence farmers with many skills, they benefited from the commercial sale of potash and pearlash (from clearing the forests) in demand in England at the time.  As cities and towns grew, these same farmers supplied nearby communities with many products from their farms.  They did this in exchange for goods that they needed themselves and could not produce.  Waterpower, and the growth of waterborne transportation again helped to transform Vermont agriculture.  While it created new markets in nearby cities like Boston, New York, Albany, and Montreal, it opened up new competition from products being brought into Vermont.  It also made Vermont more dependent upon these products from other regions.  Even though the railroads further opened up new year-round marketing opportunities, this new form of transportation also brought increased competition from the West.  Vermont farmers had to adapt to these changes, as they did in the progression from being the sheep capital of the world to butter, and then to being a fluid milk supplier to regional markets beginning in the late 1800’s and continuing to this day.   The changes did not take place quickly, and there was resistance from many, but it happened nevertheless.  The sheep industry declined due to the loss of protective tariffs and with competition from lower cost producing areas in the West; the same happened with grains, beef, butter, hops, apples and other products.  When many farmers began to specialize in fluid milk production due to demand from the nearby cities like Boston, farmer cooperatives became important in bargaining for fair pricing for their members.  Federal actions relative to dairy price supports and parity pricing could not forestall the pressure for change and the eventual beginning of the deregulation of the dairy industry in the early 1980’s.  The westward movement of milk production in the United States (lower cost of production), combined with pricing deregulation, and increased connections with world markets, has resulted in deep and prolonged pricing cycles that continue to put Vermont and other Northeast dairy farmers at financial risk.

CREATION OF THE STATE BOARD OF AGRICULTURE, MINING, AND STATISTICS IN 1872 TO ADDRESS A UNIFORM PLAN OF ACTION

The State Act passed in 1870 (An Act Establishing a Board of Agriculture, Manufacturing, Mining and Statistics) appears to be the first organized attempt of public policy collaboration to address agricultural issues within the State.  This Board, the predecessor to the State Department of Agriculture that was established in 1909, consisted of the Governor as Chair, the President of the State Agriculture College, and six other individuals appointed by the Governor and confirmed by the Senate.  While the Board was only required to hold two meetings per year (one business meeting and one public meeting), it undertook during its existence a very aggressive schedule of sessions around the State, working with the then County Agricultural Societies, Dairymen’s clubs and town Agricultural and Horticultural societies.  It’s objective was to secure some uniform and systematic plan of work regarding agriculture throughout the State of Vermont. It was this Board that recommended the establishment of the Agricultural Experiment Station at the University of Vermont, for example.

SOME RECOMMENDATIONS MADE TO THE THEN BOARD OF AGRICULTURE RELATING TO THE FUTURE OF AGRICULTURE WITHIN THE STATE

• In a paper entitled “The Farmer’s Future”, by Rev. G. F. Wright of Bakersfield delivered at a meeting of the State Board of Agriculture in St. Albans on March 6 and 7^th, 1872, he stated that “… it is useless for the Vermont farmer to compete with those of the West in raising those few staples of product that can be naturally raised in the west, and that will bear storing and transportation without risk of injury, and without too much expense.”  He went on to say “that the Vermont farmer has a substantial hold on the future.  His soil, his climate, his abundance of pure water, his proximity to markets of the growing cities and villages, give him unrivaled facilities for success….   Only those will prosper who use their minds in studying how to cater to the demands of this growing market and this changing state of things.”    Others expressed similar views.
• G.G. Small, Esq. of Morrisville stated to the Board (see 1873-1874 Biennial Report of the Board) that, “Vermont as a State is well adapted to butter making.  We cannot compete with the West in beef, pork, wool or grain, and not much longer in butter unless we are making a superior product.”
• M. O. Howe of Fayetteville in the report of the State Board of Agriculture, 1875-1876, stated that, “it is the value of the products, not the quantity, that indicates the profits of agriculture.  There will continue to be the difference of freight and commissions between the markets of the East and the West.”
• Some seven years later, Lyman W. Peet of Cornwall, Vermont in a paper presented to the State Board of Agriculture in 1883-84 entitled “Eastern and Western Farming”, stated that “only by the use of greater skill and capital by which production shall be cheapened with a quality so superior as to command the highest price in the market, can we hope successfully to meet Western competition.
• In the Tenth Report of the Board of Agriculture in 1888-1889 a writer stated that “the selling price of all agricultural commodities tends to approach the lowest cost of production, and the West with cheap feed can produce at less cost than New England.”
• An author in the 15^th and 16^th Report of the Board of Agriculture for 1894-1895 stated that, “our own state has seen one industry after another go down under the fierce competition of cheap western land.  Our sheep, beef, and grain production have all been borne down through this cause, and today our dairymen are manfully contesting the ground with these same forces.”

These individuals, like some before and many after them, were visionaries.  They had seen change, had been part of it, and recognized the strengths and competitive advantages of farming in Vermont. As noted above, an important advantage to the Vermont farmer was being near emerging markets, and growing and producing products of the highest quality to meet nearby consumer needs.  Even later, after the creation of the State Department of Agriculture, there were similar views.  Then Commissioner of Agriculture E.S. Brigham in his annual report stated, “The products that belong in the East are those that are adapted to our soil and climate and are needed in large market centers.”(Fifth annual report of the Commissioner of Agriculture, 1913).

PUBLIC POLICIES AND PROGRAMS AT FEDERAL AND STATE LEVEL CREATED TO ASSIST THE FARM SECTOR

Numerous public policies and programs at the federal and state level have been implemented over time to assist farmers. These policies and programs have addressed education (Land Grant College, Vermont Technical College, vocational education), research (Experiment Station); outreach in education (UVM Extension Service); soil, water and land conservation (USDA Soil Conservation Service, Conservation Districts, Agency of Agriculture); purchase of development rights,(Vermont Housing and Conservation Board, and Vermont Land Trust), crop insurance, cooperative marketing (Capper-Volstead Act and growth of farmer cooperatives), tariff protections (limitations on import of dairy and other products to U.S.), market orders and orderly marketing, organic standards, disaster assistance, taxation (income and property), electricity(rural electric), energy development (methane digesters and new farm based energy crops), communications (rural telephone system), credit(USDA Farm Service, Farm Credit, and Vermont Agricultural Credit Corp.), farm viability, new product and market development (USDA Rural Development), state and regional marketing, food and product safety, and farmland protection (Act 250 with prime and statewide soils), to mention but a few.  Attempts have also been made by policy officials to protect farmers from negative pricing and resulting impacts. Some examples from the past include fighting for higher tariffs on wool (1820’s through 1830’s and later); railroad freight rates (interstate commerce); laws to outlaw the coloring of margarine (1900’s); work to pass laws for market orders (1930’s); minimum parity pricing for dairy (1949); and more recently the Northeast dairy compact and the MILC or milk income loss compensation program.    

TIMES HAVE CHANGED…. BUT ARE EARLIER RECOMMENDATIONS STILL VALID FOR VERMONT FARMERS?

Others in the past were not so sanguine about the future of Vermont agriculture, particularly dairy. An editorial in one of the State papers back in 1881-1882 (see Seventh State Board of Agriculture Report) addressed competition from the West. After noting that the wheat growing region was gradually moving westward, and the low rates of transportation enabled even the far west to compete with New England in the eastern markets, the writer says “dairying is about all there is left to the farmers of Vermont, and the west will eventually wrest all the profits of that industry from his hands.”  Note:  In fact most of the growth in U.S. milk production in the last several years has occurred in the West and the Mountain States. (From 2002-2007 California’s production was up by 25%, Upper West by 33%, South West by 35%.  The Northeast, which has twenty percent of the U.S milk production, declined by 1 %. (Source: USDA).  Vermont only consumes about five percent of the fluid milk that is produced in the State, and its milk supply represents less than 2 percent of U.S milk production.

DAIRYING DOES HAVE A FUTURE IN VERMONT…BUT NOT WITHOUT SIGNIFICANT COMMITMENT TO INCLUDE CAPITAL FOR NEW PRODUCT DEVELOPMENT AND GROWTH OF THE MILK SUPPLY

One of the most frustrating yet stimulating jobs as Secretary of Agriculture for Vermont was trying to figure out how to deal with a declining dairy sector, in collaboration with others.  Many before have faced the same challenge.  Even though the decline in the number of dairy farms has been taking place over time, there is a certain critical mass of milk production necessary for supplying existing plants and for luring processing firms to the State. As I was told when a major milk processor left Vermont, they are looking to locate in areas where milk supply is growing and not declining.  The early Vermonters recognized the State’s competitive advantages (grow grass well for livestock, and near large and growing markets), and disadvantages (competition with West and other regions with commodity products).

There have been numerous studies of and discussions about the Vermont dairy industry over the recent past.  These have included the Agriculture Focus Group Report to the Governor’s Commission on The Economic Future of Vermont, November, 1989; the Vermont Agricultural Viability Council Final Report in January 2003; A Final Decision and Report on the Proceedings of the Vermont Milk Commission in January 15, 2008; Seeking to Ensure the Future Viability of Vermont’s Dairy Industry, Report of the Thirty-Third Grafton Conference, The Windham Foundation, Grafton, Vermont, March 6-7, 2008, and December 15-16, 2008; Recommendations by independent business advisory group on dairy to the Vermont Secretary of Agriculture, October 19, 2010; and more recently the Farm to Plate strategic plan.  There are common themes in all of these studies and reports on actions that should be taken to encourage a growing dairy sector within the State.  Some of the actions recommended include the need for:

• Risk mitigation strategies:  As milk pricing has become more volatile, farmers need new and various forms of risk mitigation for pricing.  This will become more important as a result of pending federal budgetary reductions in federal farm programs.  Mitigation takes many forms to include product diversification, methane digesters, futures pricing and options, price margin insurance, rotational grazing, organic production, on-farm processing, and other initiatives.
• New product innovation:  Markets and consumer needs are constantly changing.  In a paper by USDA Rural Development, Research Report 206, May 2005 “Dairy Cooperative Growth Challenges: Technology, Ingredients (Proteins) and Equity Financing” the author states that “in the future driven by technology, cooperatives face many challenges to include need for more research and development, more aggressive product development and marketing; new manufacturing processing and technology, and equity financing to fuel these changes.” Note: Vermont dairy cooperatives are critical in the marketing and balancing of milk supplies, but lack the necessary capital for research and development (R&D) of new products and their marketing.  O-AT-KA dairy cooperative in New York is looked at as an example of the type of facility and the type of research and development in new products that should be coming from Vermont, with its brand recognition.  The current approach to new product development and marketing by Vermont dairy cooperatives will possibly lead to more fracturing of the milk supply and the dairy industry in the state. (Loss of additional farms, more on the farm specialty product production, movement to organic production).  New forms of capital other than from their farmer members are possible and should be aggressively explored to include the EB5 program.
• Strategies or incentives to grow the milk supply (milk volume and farm numbers):  Dairy cooperatives market most of the milk within the U.S. and within Vermont, and thus growth strategies remain important.  Wisconsin has been successful in growing its dairy industry, even during trying economic times.  “Wisconsin dairy plants invested $1.24 billion in equipment and facilities between 2004-2009.”    The State of Wisconsin invested aggressively in this process as well.  They have discovered what others have known for some time, that manufacturing facilities are drawn to regions were there is a growing dairy sector.  If Vermont wants to grow its dairy sector, there is a need for aggressive cooperative strategies with farm organizations, educational institutions, land trusts, lending institutions, and others (this topic was discussed at the Grafton Conference, with a recommendation on the formation of incubators).  Wisconsin carried out these activities with the help of Grow Wisconsin Dairy Teams, the Dairy Business Innovation Center, and Wisconsin Dairy Farm Management Teams.  While Vermont has implemented many programs (farm viability, Agricultural Innovation Center, 25 x 25 energy initiative, dairy management teams, Keep Farms Local, methane digester development, Farm First, Farm Mitigation, agricultural land protection and purchase of development rights, current use taxation), it still lacks a strategy to build its milk supply even though ideas have been discussed in the past with cooperatives and others.  Vermont dairy cooperatives need to take a very active and aggressive leadership role in working to accomplish this task and they must not be perceived as passive participants in this effort.
• Increased collaboration with the UVM’s Land Grant and Experiment Station: There is the need for increased collaboration with the new Food Systems Spire and the Dairy Center of Excellence at the University of Vermont.  Possibilities for research that can lead to greater value for dairy products in Vermont and for production efficiencies on the farm must be explored.  As the Land Grant works to continually define and refine its organic mission, there is an opportunity to develop collaborative partnerships. 
• New incubators to assist in the transfer of farms to a new generation of farmers: Expand the incubator system for new dairy farmers with examples developed by Dr. Chris Dutton at Vermont Technical College, and others like those being used by Jasper Hill for new farmstead cheese producers, and the Vermont Land Trust.  There are many young people and current farmers interested in dairy farming.  While the cost of entry to farming today is high, incubator concepts are being tested as a way to provide training and eventual ownership for these new entrants.
• Continued support for dairy profitability and farm viability teams to help farmers identify ways to address production efficiencies and diversification options. These programs are actively being used and should continue.
• Support for key proposals from Farm to Plate and from the Working Lands initiatives:  These efforts could further help to develop the dairy industry and agriculture in Vermont.  Some of the proposed initiatives include a new capital development fund, and a working lands initiative that will encourage agricultural enterprise growth within the State. 

Dr. David Galton of Cornell University stated the challenge well in a presentation “A Perspective on the Northeast Dairy Industry.”   One of the clear challenges he presented in his presentation was the choice in the Northeast for building a greater supply of milk in order to be recognized as a growing competitive region, or losing the market to other areas. Without an aggressive strategy at all levels, the U.S. milk production will continue to shift to new and larger dairies in the Western states.  Technology such as ultra-filtration on large farms is lowering transportation and processing costs and thus making it possible to move milk longer distances.  Others have reached a similar conclusion (see Synergy LLC).  “The Northeast advantage is being close to markets, but this is tentative due to the development in transportation, packaging, and product formulation.  To stay competitive, the Northeast needs a higher level of farm management; capital for growth; vehicles for growth and transfer of assets; and tools for price volatility risk.”

BLOGGER’S COMMENTS:

There have been those who have compared the dairy sector in Vermont today to what happened with the loss of the Merino sheep industry in the 1800’s.   These similarities include the continuing westward migration of dairy production with very large dairy farms in several western states, an antiquated pricing system that results in wide pricing swings when national production greatly exceeds supply with influences from international markets, lower costs of production on many western farms with subsidized water and power, a tariff system that helps protect against large imports from other countries that has been subject of WTO and bi-lateral trade negotiations to allow freer trade from lower cost of production countries like New Zealand, and dependence on Congress for changes to provide more economic equality and opportunities for Northeast dairy farmers and those in other parts of the United States. While there may be some similarities in this regard, I submit that differences do exist today.  These differences include an increased interest in local and regional food production, the need to know where and how our food is produced, increased costs of transportation in bringing products from more distant markets, and the recognition that value-added product production with goods that meet consumer needs is the future.  All of this leads to greater diversification on the farm.  This recognition for value-added products has resulted in the growth of farm-based and other specialty cheese and product production.  As history has demonstrated, Vermont is a state that also benefits from livestock agriculture that can convert grass to meat or milk.  This is just one of the state’s strengths.

If our dairy farms are to survive, it will take aggressive and committed leadership with collaborative strategies to deal with these changes.  Vermont must demonstrate that it can grow its dairy industry.  To do so, dairy farmers, even new entrants to farming, must have confidence relative to pricing and must find ways to mitigate risks though diversification and other strategies.  As Dr. Galton at Cornell stated in his presentation, “…the choices are to grow or to see the loss of markets to other regions”.  While changes in federal dairy policy are warranted and strongly encouraged, Vermont dairy farmers cannot bank on these for their individual financial success going forward.  The outcome of these policies is always unknown just as it was when the sheep industry fought for the continuation of higher import tariffs back in the 1800’s.  If we want the agricultural sector in Vermont to prosper in the future we must look inward and find ways to build on our state’s strengths, as recognized by the early visionaries back in the 1800’s.

REFERENCES AND SOURCES FOR THIS BLOG POSTING:

• First Annual Report, Vermont State Board of Agriculture, Manufacturing, and Mining, 1872.
• A Paper, “The Vermont Farmer’s Future”, by Rev. G. F. Wright of Bakersfield, Vermont, presented to the State Board of Agriculture at a meeting in St. Albans, March 6-7^th, 1872.
• A Paper, “Eastern and Western Farming”, by Lyman W. Peet of Cornwall, Vermont.  See Eight Report of State Board of Agriculture, 1883-1884.
• New England Grades and Standards Act, 1927, see Biannual Report of the Commissioner of Agriculture, 1926-1928.
• A Detailed Survey of Leading Markets for Vermont Products, see Eight Annual Report of the Commissioner of Agriculture, 1916.
• Agriculture Focus Group, Report to Governor’s Commission on The Economic Future of Vermont, November 1989.
• The Northeast Interstate Dairy Compact Public Hearings Report, N.Y. State Legislative Commission on Dairy Industry Development, June 1990
• Vermont Agriculture Viability Council Final Report, Vermont Council of Rural Development, January 2003.
• Vermont Farmstead Cheese Marketing Study, January-March 2006, Prepared for the Vermont Housing and Conservation Board.
• Future Structure of the Dairy Industry; Historical Trends, Projections and Issues, by Eddy LaDue et. al, Cornell Program on Agriculture and Small Business Finance, Department of Applied Economics and Management, Cornell University Agricultural Experiment Station, College of Agriculture and Life Sciences, Cornell University, June 2003, R.B. 2003-01.
• The Impact of Globalization on the U.S. Dairy Industry: Threats, Opportunities, and Implications, Innovation Center for U.S. Dairy, August 2009.
• See Synergy LLC
• A Final Decision and Report on the Proceedings of the Vermont Milk Commission, January 15, 2008.
• Dairy Cooperative Growth Challenges: Technology, Ingredients (Proteins), and Equity Financing, USDA Rural Development, Research Report 206, May 2005.
• Dairy Cooperatives Bulletin: Structural Change and Operations, by Robert Crop, University of Wisconsin, Center for Cooperatives, Bulletin No. 4, October 2002.
• New Strategies for Mobilizing Capital in Agricultural Cooperatives, in FAO Corporate Document Repository, Economic and Social Development Department.
• Dairy Cooperatives and Their Role in the United States, by Robert Jacobsen and Robert Cropp, Dairy Markets and Policy Issues and Options, Cornell University, August 1995.
• Remarks to the New England Dairy Promotion Board by Roger Allbee, Nov. 19, 2010.
• Seeking to Ensure the Future Viability of Vermont’s Dairy Industry, Report of the Thirty-Third Grafton Conference, The Windham Foundation, Grafton, Vermont, March 6-7, 2008, and December 15-16, 2008.
• “Wisconsin Facing a Dairy Deficit,” by Ann Marie Ames, April 25, 2011, in GazetteXtra.com, May 27, 2011.
• “Vermont Dairy Sector: Is There a Sustainable Future for the 800 lb. Gorilla?”, A paper by Dr. Robert Parsons, Vol. 1, No. 4, Opportunities for Agriculture, Working Paper Series, UVM Center for Rural Studies.
• “Trends in the U.S. Dairy Industry”, by Joe Horner, Dairy Economist, Commercial Agricultural Program, University of Missouri, Columbia, Missouri.
• “Upstate Niagara”, by James Dudlicek, in Dairy Facts Corporate Profile, August 2008.
• “A Perspective on the Northeast Dairy Industry”, a presentation by David Galton, Cornell University.
• See “Farm to Plate”, the Vermont Sustainable Jobs Fund.
• See “The Working Landscape Initiative”, the Vermont Council on Rural Development

ANSWER TO LAST BLOG POSTING TRIVIA QUESTION:  The first Chair of the State Board of Agriculture in 1872 was the Governor of the State of Vermont, John W. Steward.  Matthew Buckham, President of the State Agricultural College, and six other individuals that he appointed with confirmation by the State Senate assisted him in this effort.

NEXT BLOG POSTING:  A Historical Perspective on Agricultural Education in Vermont

Trivia Question:  How long did Justin Morill serve as a Member of Congress, and what are some of the things he accomplished besides passage of the Land Grant Act?

Edition No. 10, June 14, 2011