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"It just doesn’t add up"
Added January 19, 2012. In 1995 when we purchased a farm in central Minnesota, it was the Ideal place to raise children. We started with farrow to finish hogs, a few milk cows and chickens on the farm. Refusing to support large corporations by using chemicals, GMO grains and wanting to be self-supporting and responsible to the land of which we were stewards, we began transitioning the farm to organic production. We became certified organic in 2000 and focused our attention on become a certified organic dairy farm. Like everyone else, to make ends meet I also worked off the farm in home construction. From 2000 until now it takes twice as many milking cows to cover the farm expenses. The cost changes in production needed to sustain a farm from 2000 to today has nearly doubled with little to no increase in milk price.
What is going on? Our expenses keep going up, but milk price doesn't change much. We continue working off the farm and cutting wherever we can, and we still just can't seem to gain the ground we need to bring in much above expenses.
We came to the point of evaluating our monetary value of the US dollar. How much did the dollar buy and how much can it buy today? We think of the dollar and we trust, or rather assume, that it is solidly backed by something more than good faith, but it is not backed by anything except the faith that it will buy what we need. It is not backed by any soft or hard commodity like gold, just goodwill.
In the year 2000 NFO's yearly Class III conventional milk averaged $9.74 cwt. and gold for that year averaged $280.00. The milk price is 3.4% of the gold price or it takes over 2874# of milk to buy 1 oz. of gold. Today, January 10, 2012 at 3:00 pm at dairy.com the milk price is $17.12 and gold at kitco.com is $1632.00. Our milk price is 1.04% of the gold price or it takes 9,533 lbs. to purchase 1 oz. of gold. That is over 3 times the rate exchange that existed in year 2000. That is over 3 times more milk to buy the same amount of gold. If our milk was the same percentage of gold as it was in year 2000, we would be getting over $50.00 cwt. What has changed? The gold content is the same 1 oz. and the milk content is the same 100 lbs. It is the purchasing power of the dollar. The dollar is more worthless today than it was in year 2000. In fact, it buys over 78% less than it did in year 2000. This seems to be called monetary Inflation, or someone has printed too many dollars with nothing to back the dollars like a solid commodity as gold.
Well, you can use the same conversion on any farm commodity and see the unfairness in our current currency. It's not just the farmer that is at a disadvantage. Everyone who did not receive a 3 times increase in their wage since year 2000 has lost over 78% of the buying power for each dollar they receive.
The same conversion works for organic farms also. In year 2000, organic milk was around $17.50 CWT base price. Today the same milk costs about $22.00 to $23.00 CWT base price. To keep up with gold and equal purchasing power of the dollar, the price of organic milk should be close to $85.00 CWT.
Yes, we would all love to see these prices today, but just ten years ago we were receiving them based on a gold conversion. Our monetary value is the responsibility of our government. They need to increase the value of the dollar or we need to find another worthy medium of exchange for our goods.
As members of NFO, we need to bargain collectively. Can farmers unite together? Will they? We want to trust the government. The government's responsibility is to make sure that our dollar is worth using and our responsibility is to feed our families, friends and neighbors.
A farmer with a calculator
Posted: to Economics of Organic Dairy Production on Thu, Jan 19, 2012
Updated: Thu, Jan 19, 2012