Imagine a business where the price you receive for your product drops steeply, just as your costs to produce that product start to soar. Not a recipe for success, is it?
Say hello to modern dairy farming.
Three years ago, those were the exact conditions dairy farmers faced in Pennsylvania and across the country.
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At the peak of the recession, the combination of very low milk prices and high prices for corn and other types of cattle feed forced some farmers out of business, while many others barely survived.
Nationwide, America's 60,000 dairy farmers lost more than $14 billion in equity between 2008 and 2009. For some, those losses dug a hole that will take years to climb out of.
What is most worrisome is that we'll likely face those conditions again, unless something is done about antiquated federal dairy policies, some of which date back more than 60 years. As 2012 began, milk prices were dropping and the cost of feeding dairy cows remained a challenge.
Fortunately, there is an alternative, one that could fix dairy policy to address today's conditions.
It is based on a program drafted by farmers themselves, through the National Milk Producers Federation and put forward by a bipartisan group of U.S. House members. It treats all farmers equally, regardless of the size of their operation or their geographic location.
Written by the top Democrat on the House Agriculture Committee, Minnesota's Collin Peterson, and senior Republican Mike Simpson of Idaho, the Dairy Security Act focuses not on prices but margins - the spread between the milk prices received by farmers and the feed costs paid by farmers. Tight or non-existent margins are the problem facing all livestock producers - but especially dairy farmers.
The Dairy Security Act would scrap current federal dairy programs and set up what amounts to an insurance plan to protect farm income when margins shrink.
To prevent extreme price swings or prolonged low-margin situations caused by excessive milk supplies, a standby program would reduce milk production for a short period to restore a supply-demand balance.
These programs would be voluntary, so those who do not want to participate don't have to. Farmers could choose to go it on their own or accept a government safety net that, if necessary, requires them to adjust their milk production.
And here's more important news. According to the nonpartisan Congressional Budget Office, the Dairy Security Act saves taxpayers' money - more than $100 million over five years - at a time when all federal spending is under intense scrutiny.
Today's dairy policies have failed Pennsylvania farmers miserably. We need new policies that provide a more effective, but low-cost safety net.
The Dairy Security Act protects producers, allows for growth, assures an abundant supply of milk for consumers, and saves tax dollars. It is also the only comprehensive reform proposal on the table as Congress starts to write a new, multiyear farm bill.
Pennsylvania dairy farmers contribute a lot to our state's economy - more than $1.9 billion at last count, or more than a third of our total farm receipts.
Dairy products are our No. 1 farm commodity. But we need a safety net that works and that keeps pace with the challenges facing our industry.
The Dairy Security Act does both. It deserves quick adoption by the U.S. House and Senate.
Tom Wakefield is a dairy farmer from Bedford. A member of the boards of both Land O'Lakes and the National Milk Producers Federation, Wakefield milks 150 cows and grows corn, soybeans and more on 600 acres.
