Ted Auch

Dairy farmers are in real trouble and it isn’t the kind associated with stepping in a present left by the resident ruminants. No they will be facing serious decisions in the coming months and years, with many here in Vermont (32 since December 1 2008) already having decided to abandon business they have invested decades in. I am specifically speaking of organic dairy producers who have seen demand for their product climb from approximately 75 million pds. in 2006 to a high of 150 during the later stages of 2008 followed by a precipitous drop this year to 125 million pds. (http://www.nytimes.com/2009/05/29/us/29dairy.html?em) Sales growth has slowed from 20% last November to near zero presently, although projections range from 6 to 12.7%. Many organic farmers owe upwards of half a million dollars from conversion to organic.

Yet, the pain is not exclusive to organic farmers what with the extremely volatile (And getting more so! (http://www.nytimes.com/2009/01/02/business/02dairy.html?sq=dairy%20california&st=cse&scp=10&pagewanted=all)) price of milk declining from a high historical high of $19.13 per cwt in 2007 to $12.06 (-36%) presently. Couple this with a steady (1952-2004) and at times marked (1945-1950) aggregate inclination to move away from milk consumption here in the US. While it is true that some of this market decline has been nullified by the doubling of dairy consumption in developing countries and China from 33 in 2002 to 63 pds per year in 2007. Although as with CO2 they pale in comparison to our 580 pound annual habit. Yet, I would ask the Chinese already own a large portion of our debt do we really want them to control our farmers as well?

SO, is it all doom and gloom you may ask? Well the answer in my humble opinion is not so fast my friend! We have only to look inward at Green Mountain Dairy Farm in Sheldon, VT. where the Rowell brothers are getting the most out of their beloved bovines (http://www.nytimes.com/2008/09/24/business/businessspecial2/24farmers.html?scp=1&sq=methane%20vermont%20cow%20farm&st=cse). If we use their calculations and assume that 0.25 Kilowatt Hour (kWh) can be generated per dairy cow and we assume there are approximately 141,000 head in Vermont (1,498,100 in th Northeast) we would could potentially generate 35,250 kWh per day (374,525 in the Northeast) of electricty from our friendly ruminates here in Vermont. This translates to about 1,286.7 MW annually, which would provide electricity to 10% of Vermont housing units (311,434) or 12% of all households (240,634) (http://quickfacts.census.gov/qfd/states/50000.html; vermont-area-sheet-us-census-2005), which no matter how you slice it is not a trivial piece of the pie (Pardon the pun!). Assuming the average price of a kWh in VT is 12.5 cents (12.1 cents in NE (http://www.eia.doe.gov/neic/brochure/electricity/electricity.html)) and a 5-6 cent premium (ie 17.5-18.5 cents) we are talking about a net income of about $2,187,263, however, if scaling up of this type of effort increases efficiency by lets say 0.15 kWh revenue increases to $3,499,620.

Better yet if we use this process as a Heat Generating mechanism, which has been proven markedly more efficient for biomass relative to fuel or electricity the numbers inflate substantially with 27-35% of homes heated, 3,602.5 MW annually and $6,124,335 in revenue.

Yet, there is more and it involves looking to France a country and mindset that in many ways mirros ours here in Vermont. Folks in southeast France ever wary of financial institutions (Yeah those!) have taken to investing in Holsteins, which bring 4-5% returns annually, while basic French banks tend to offer 0.75 interest rates (http://www.nytimes.com/2009/05/12/world/europe/12cows.html?scp=4&sq=france%20cow&st=cse). Yeah I know this is much less than our banks, but the fact is that investing in a neighbor’s struggling dairy or beef operation would I presume give one far more satisfaction. Currently interest rates fluctuate between 1.6 for CDs and 8.8% for home equity. According to Pierre Marguerit managing director of a cattle investment firm in France “People have saved money and don’t want to waste it. Stocks have fallen a lot, and people see it. We need somewhere to put our money for a long-term investment, something more stable. At this difficult time, it’s a much better investment than real estate and much more tangible than the stock market. This is part of the patrimony.”

However, unlike traditional Wall Street related investments the folks in France are finding volatility indices are far lower for cows relative to the latter’s “Masters of the Universe”. The data out of France suggests that such relationships free upwards of 17% of capital for investments and improvement, which in many instances were relegated to the back burner in perpetude.

The fact is that our friends and neighbors in the dairy industry here in Vermont and throughout the country need our help now and I don’t believe they have ever attempted the types of legerdemain the suits in NY, London, and Hong Kong conjured up. They deserve our respect and support during these tough times, because unlike the auto industry they can’t stop feeding and milking their cows. There is huge potential in them there cow patties and it is time to harvest it. Lets show the country and the world the softer side of capitalism!