Cheese Trade Causing Problems For Dairy Farmers
Some
days, you really learn just how dependent we are on trusting others to
pay a fair price for goods and services. This article comes by
way of A.V. Kreb's Agribusiness Examiner. A group of dairy farmers is protesting the ability of Big Dairy to manipulate prices to the advantage of the buyers.
IT'S A STRUGGLE BETWEEN
SMALL DAIRY FARMERS
AMD MULTINATIONALS IN
MERC CHEDDAR CHEESE PIT
JEREMY
GRANT, LONDON FINANCIAL TIMES: Every morning, about 30 people gather in
a corner of the Chicago Mercantile Exchange to conduct one of the
world's most unusual auctions: buying and selling cheddar cheese.
Traders
with telephones pressed to their ears shout orders to two men standing
in front of a white board, on which they mark up bids and offers. The
session is the only one of its kind in the U.S. and probably one of the
shortest commodity auctions, never lasting more than 15 minutes.
Cheese
trading has carried on largely unnoticed for years, but this week it
has become an unexpectedly public battleground in the struggle between
small farmers and “big dairy” multinationals.
A
coalition of farmers and consumer groups gathered outside the exchange
on Monday, many dressed in cow suits, to protest against alleged price
manipulation on the market. Their targets were dairy co-operatives such
as the Dairy Farmers of America, the largest grouping in the country's
second biggest agricultural sector, and multinational food companies
such as Kraft Foods.
Paul
Rozwadowski, a Wisconsin dairy farmer and chairman of the National
Family Farm Coalition's dairy sub-committee, says: “We want government
to oversee what's going on at the CME — a handful of dairy traders
who manipulate commodity prices to their advantage.”
The
CME, Kraft and the DFA deny the allegations. “Many businesses with very
different interests — manufacturers, sellers and brokers —
participate in the market,” says Kraft.
Like
other participants, Kraft uses the exchange when it cannot meet its
needs for ingredients used in its Di Giorno frozen pizzas and
Philadelphia cream cheese from other sources.
At
the root of the protesters' complaint is a suspicion that the cheese
market is a tool by which “big dairy” and food companies are not only
setting prices at levels that suit them, but generating price
volatility — making it impossible for smaller farmers to operate.
The
protesters have focused on the exchange because its cheese market,
despite its low public profile, has, through nothing more than custom,
become a benchmark for setting prices for farmers. Under a system known
as the Federal Milk Marketing Order, in place since the 1930s, the U.S.
government calculates monthly the minimum price that should be paid to
dairy farmers for their raw milk. The cheese price is a factor in those
calculations.
Joe
Logan, president of the Ohio Farmers Union, says trading on the
exchange represents just a fraction of one per cent of U.S. commercial
cheese transactions, yet has an influence “far beyond that”.
“We
are trying to shed light on the fact that the CME is an extremely thin
market without any transparency and (without) any significant oversight
that has a tremendous impact on dairy prices nationally and globally.”
He
argues that, because the dairy industry has become increasingly
consolidated, factors other than the cheese price, such as average
production costs, should be used to set dairy prices instead.
He
is approaching the justice department to ask for hearings under the
Federal Trade Commission. “In a situation where the market has
consolidated so that the conventional dynamics of competition are no
longer functional, we need to create another system,” he says.
Ed
Jesse, dairy economist at the University of Wisconsin-Madison, agrees
that the cheese price has undue influence on national dairy prices.
“What you've got is the flea in the tail of the dog wagging the dog,”
he says.
The
NFFC and others have called for stricter surveillance of the cheese
market, and for the Chicago exchange to publish who is behind trades.
The CME is considering that request.
But
cheese traders say the government's system, not their market, is to
blame. “If the farmers have a complaint, they have a complaint with the
government, not us,” says Erik Andersen, a cheese and milk futures
trader.
Mr
Jesse says he has “never been a fan” of the system and that there is
“no doubt that the smaller dairy farmer is being squeezed”.
Government
figures show that U.S. milk production generated by farms with 100
cattle or less fell to 22% last year, from 45% in 1993. By contrast,
the largest farms, with more than 2,000 cattle, accounted for 20% of
U.S. milk production last year, up from only eight per cent in 1993.
No
matter what the outcome of small farmers' efforts to pursue the issue,
attention could focus increasingly on the government's antiquated
system. Asked whether the marketing order system was still an
appropriate way to set milk prices, the U.S. Department of Agriculture,
which administers the process, said: “We will not be answering that
question.” [ April 22, 2005 ]
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