The United States dairy industry may shrink by more than 20,000 farmers in coming years due to low milk returns, prompting an American dairy leader to speculate the industry could also undergo major reforms.
Dairy Management Inc chief executive Tom Gallagher told visiting journalists in Chicago that farm costs were, on average, nearly $2 a kg milk solids (kg/ms) more than milk income.
Mr Gallagher said while there was mood for change, farmers would not do it alone.
It had to be an industry initiative.
Things had got so bad it had forced farmers to say they were so broke, the industry had to fix it.
New Zealand dairy officials have warned this could be a precursor for a greater focus by the US on exporting.
Traditionally, all US dairy production has been consumed locally, but output has been increasing and exporting has started.
Unfortunately, the global recession meant 2.7 billion kg of dairy products the US exported last year now had no home, depressing domestic prices and prompting the US Government to introduce a floor in milk prices and an export subsidy.
The claim by officials the US could be positioning itself for a more active role as a dairy exporter, gained further credibility when Mr Gallagher said American dairy industry reform needed to address ageing infrastructure and producers to start producing goods which customers wanted.
"I think farmers are willing to put things on the table that they have never put on the table before, but it is not all about them."
There are 57,000 dairy farmers in the US and Mr Gallagher said while the industry would shrink, a worst-case scenario could see a decline of more than 20,000.
Dairy Management is a farmer-funded dairy marketing and planning organisation, and in recent years it has been trying to reposition milk and milk products as a consumer item, not a commodity.
Mr Gallagher was part of an industry task force convened to look at problems with US dairy and he said its considerations indicated fundamental changes were on the horizon, which would make it competitive in the open market.
The time for change was more right now than it had ever been, he said.
This year, US farmers received, on average, between $5 and $5.50 kg/ms, well below the historic breakeven point of $5.50 kg/ms.
But the industry relied on inputs of grain and other supplements, the prices of which remained high, exceeding income by 30%.
- Neal Wallace's visit to the US was arranged and paid for by Fonterra.
