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Dairy succumbs to arcane system

Published on January 14, 2011 3:01AM

Last changed on February 11, 2011 7:38AM

Rik Dalvit/For the Capital Press

Rik Dalvit/For the Capital Press

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Mallorie's Dairy in Silverton, Ore., is closing this month after 56 years in business.

There are a lot of family dairies that have been driven into financial trouble. While a couple of years of miserable dairy prices and high feed costs haven't helped, Mallorie's is really the victim of its own efficiency and an arcane milk-pricing policy.

Mallorie's is a producer-handler. It milks its own cows, processes and bottles its own milk and markets its own products to 16 stores around the Willamette Valley. Owned and operated by the third generation of the Mallorie family, the company has more than 50 employees who tend the cattle, process the milk and service the retail customers.

Producer-handlers are relatively rare. Most farmers sell their milk through a co-op or directly to a processor. They work within a complex government milk-marketing system. The proceeds for the sale of their milk are pooled with those of other farmers in their region. Everyone gets the same price for their milk, no matter what it's used for.

The system, developed in the 1930s, is supposed to deliver a guaranteed price to producers and provide consumers with a constant supply at a reasonable cost.

Producer-handlers do not participate in the pricing pools because they don't sell their milk to an outside processor. Because they add value to the raw product, they realize a higher percentage of the final retail price. They also assume greater costs and more risk.

In the 1930s, dairy farms, co-ops and processing companies were small. The law didn't put a limit on the volume a producer-handler could sell under the exemption. But dairy farms, co-ops and processors got bigger, and so did a few producer-handlers.

In 2005, the dairy lobby convinced Congress to pass legislation limiting the producer-handler exemptions to dairies that sell no more than 3 million pounds of milk a month.

Participating in the pool would have forced the Mallories, in effect, to provide their competitors with a $1 million subsidy. To avoid the requirement, they reduced their herd by one-third. In the process they lost the economy of scale that had made their operation successful, and became less able to withstand the economic downturn that has affected the entire industry.

So the cows have been sold, the processing equipment is on the block and 50 more Oregonians will soon be looking for work. Another family farm will pass.

When Mallorie's Dairy is gone, the milk supply will not contract by any measurable amount, and farmers who participate in the pool won't see their checks increase by even one cent.

We are hard-pressed to see how its passing serves any useful purpose, other than to provide grim evidence that the system is broken.


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