America’s cheese glut is really getting out of hand

Newsbeat

The United States is currently in the midst of an epic cheese glut — with 1.2 billion pounds of cheese sitting in cold storage, per the Wall Street Journal. If we wanted to patriotically eat through that surplus, every man, woman, and child would have to grab an extra 3 pounds of cheddar, feta, or provolone and start gnawing. (That’s over and above the 36 pounds of cheese per year the average American already eats.) This overflow has been disastrous for dairy producers and farmers, whose incomes have dropped 35 percent over the past two years as prices have collapsed. To help ease the pain, the US Department of Agriculture offered this week to buy up $20 million worth of cheddar cheese and distribute it to food banks. This is the second such purchase in three months. The hitch? These government interventions are arguably making things worse, keeping the dairy market, uh, udderly out of whack. To understand the cheese glut, we have to go back two years. In 2014, China was growing rapidly, its middle class had more cash to toss around, and people started buying more and more milk (particularly powdered milk) from the United States. Dairy profits here soared, and producers decided to expand, buying more cows and churning out more milk to meet what they hoped was skyrocketing demand. This boom in milk production has been aided by relentless consolidation in the dairy industry. Back in 1987, the median dairy farm had 80 cows or fewer; today, it’s about 900. Economies of scale have driven costs down and bolstered output. On top of that, the average cow produces more milk than ever before, thanks in part to better breeding. But then came the crash. China’s economy has slowed of late, driving global milk demand down. At the same time, the European Union decided to lift domestic caps on milk production, greatly increasing supply. Then Russia slapped sanctions on foreign cheese in retaliation for Western sanctions. Meanwhile, the stronger US dollar meant that American dairy farmers had a tougher time exporting their products. It all added up to a surfeit of dairy at home. America’s dairy farms are expected to produce a record 212 billion pounds of milk this year — and there aren’t nearly enough customers to buy it all. Much of this milk is being sent to cheesemakers, who are making tons of feta, cheddar, and mozzarella and storing it for later, hoping for the best. Even that’s not enough to get rid of all the excess milk, which is highly perishable. Some farmers can’t find any takers and are dumping their milk into nearby lagoons, reports Kelsey Gee of the Wall Street Journal (who has been covering this whole saga very closely). Others are simply going out of business: 53 dairy farms have already closed in California. Now, the politics are where things get dicey. The US government has a long history of supporting hurting dairy farmers when prices collapse. But the USDA has fewer tools available than it used to. In the old days, the USDA ran a big program that would buy up millions of pounds of milk, butter, and cheese each year and simply ... put it in warehouses, never to be consumed. That helped put a floor on prices (and made economists irate). But that program was finally axed in 2012. Instead, this time around, Secretary of Agriculture Tom Vilsack is invoking a different policy — Section 32 of the Agriculture Act of 1935 — that allows the federal government to buy up food to donate to food banks. This is much smaller than the dairy supports of old, but it’s something. The USDA is also sending dairy farmers $11.2 million in payments through the Dairy Margin Protection Program, a type of subsidized insurance. Critics tend to argue that even these smaller programs still distort the market in harmful ways. After all, if there’s a glut of milk out there, then that means we probalby have too many dairy farmers. The most economically efficient option would be to let those dairy farmers go out of business, rather than pay them to keep milking their cows, exacerbating the glut.