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The Real Deal: Regarding The Price Of Milk

A SPECIAL TO CATHERINE AUSTIN FITT'S REAL DEAL COLUMN

Statement before the Tennessee House Agricultural Committee


Tennessee Capitol, Nashville, September 14, 2005
From Franklin Sanders, Westpoint, Tennessee 38486

Mr. Chairman and ladies and gentlemen, thank you very much for the privilege of speaking to you today. I am not an economist with a degree, but for the last 25 years I have published and edited a financial newsletter, and I hope that qualifies me to speak about the economic effects of the Raw Milk Sales Bill. Six years ago we moved from Shelby County to a farm in Wayne County with six of my seven children. They all still live and work on our farm. Four of them are married; we have six grandchildren and two more on the way.

I brought with me today my son, Justin, and three of my grandsons. Those little boys milk our goat every morning, and Justin and I milk our cows. Every day that dawns I give my children and grandchildren raw milk to drink, and we eat yoghurt, kefir, butter, and cheese made from that raw milk.

I want to address the Raw Milk Sales Bill from several angles:

1. Economic benefit to small farmers
2. Economic benefit to local communities
3. Benefit to (what I call) the “New Agriculture”
4. Economic impact on land value in farmers’ favour
5. Ability to preserve farming as a way of life

I won’t exactly discuss them in that order, because all these effects are so closely interwoven that discussing one necessarily involves the other.

DISAPPEARING COMMUNITIES & JOBS

Lawrence County, Tennessee offers an example of the deteriorating life cycle of small rural communities. The development model adopted there was the same one promoted by Chambers of Commerce and governments everywhere: attract new industry to your locality. New industry brings new jobs and new money, and the area will prosper naturally. At least, that’s what everybody thought a few years ago.

About 1954 Murray of Ohio moved to Lawrenceburg and opened a factory. The first generation of country people who went to work there held onto their family farms and worked 18 hour days. After a shift at the factory, they’d go home and raise all the crops and animals they ever had. Owning their own land, they were able to build up an estate for their children.

The second generation, however, was content to work at the factory and let the land go. If they stayed, their limited their farming to raising cattle or trees. Most of the land was sold off to paper companies. And why not? Couldn’t they make more money working at Murray?

By now the third generation depends completely on their factory jobs. Murray, as the largest employer in the county, set wage rates. Most local residents claim that they set them so low that they have stayed low over the past 40 years.

Meanwhile the rest of the local middle class has nearly disappeared, aided no doubt by dropping wages and the invasion of WalMart and other chains. The multitude of restaurants, bakeries, small shops, groceries, hardware stores, shoe shops, dry goods stores, dairies, craftsmen and most other small businesses has vanished. There remain only a few lawyers, doctors, and dentists, and the few small businesses that have managed to hold on.

In a county once covered with independent freeholders -- self-sufficient farmers and small business owners -- most people have become propertyless employees.

What was the sequel? Through fall 2004 Murray teetered on bankruptcy. In November, Murray declared bankruptcy. In January, 2005 the company was sold to its largest creditor, and now most workers expect the final lay off at anytime.

SHORTCOMINGS OF THE INDUSTRIAL DEVELOPMENT MODEL

The industrial development model to promote prosperity relies on drawing industry into the community from the outside to create jobs. It aims to draw outside money into the community. Fine, as long as outside demand remains strong. When that weakens, however, the community discovers exactly how dependent it has become on that outside money, and to what extent employment has been centralised and made vulnerable to forces outside the community.

The industrial development model’s failure lies in

(1) centralising employment, and
(2) not building up the local economy from the inside out.

When employment is centralised in one or two large employers (oligopoly) then the large employer sets the wage rates for everyone in the community, not just his own employees. Obviously, employment security becomes dependent on the economic health of those large employers -- not just for their employees, but for everyone else in the community through the knock-on effect.

To build up the local economy from the inside out means to encourage local people to take care of local people’s needs. Today, most food items travel an incredible 1,500 - 2,000 miles before you buy them. In an age of rapidly rising fuel costs and declining oil availability, does that make any sense? Why should Tennesseans buy tomatoes in season from California? Lettuce? Milk? Or . . . you name it. Most of life’s necessities we can raise right here quite economically, and often with a competitive advantage. We can grow locally, produce locally, buy locally, and keep the money circulating locally.

Why don’t we?

First, because people have left or been driven off the land or out of business because they depended on imported jobs. Second, because the state (with all due respect) has placed roadblocks in the way of their economic independence and their entrepreneurial ability. The Raw Milk Sales Bill would make one step toward removing those roadblocks to prosperity, without costing the state even one dime...

EFFECTS ON HEALTH & LIFESTYLE

The shift from freeholder to employee led also to lifestyle and diet changes. No longer do they exercise in their work all day, or eat a diet high in vegetables, home grown meat and eggs, and raw milk. Rather, they get little exercise and eat a processed diet weighted down with soy, sugar, refined flour, soft drinks, and other carbohydrates. Diet and lifestyle changes leave the third generation with chronic health problems, notably high blood pressure, diabetes, and obesity. Without insurance furnished by an employer they cannot afford health care, which keeps them chained to a job. Their only other alternative is TennCare, a burden on an already overburdened state.

Over the same fifty years, a people who trained their children to avoid debt have become addicted to debt. Where once father and mother laboured their whole lives to pass on a farm or business to their children mortgage- and debt-free, the children are now mired to their chins in debt. Not only have they been taught that no one can succeed in business or farming without constant borrowing, but the consumer society has also seduced them into mortgages, car loans, credit card debt, and borrowing of all kinds. Where once only Daddy worked, now Mama must work, too, to make the payments, so the children must go to day care.

If they lose their jobs, they lose everything, because they no longer own anything. How do we know this is so? Drive through any small town, and look at the host of check discounters who charge nearly 800% annual interest.

None of this points to healthy, thriving local economies. But what can be done? We can’t compete with China and Mexico, can we? We can’t turn back the clock, can we? Don’t farmers have to “get big or get out”? Isn’t it true that the small farmer just can’t produce economically any more?

None of that is true, not one word of it, and the small farmers and workers of Tennessee can compete with anybody in the world, toe to toe, if they are given a fighting chance.

That’s where the Raw Milk Sales Bill comes in. It is not a cure-all, but it can furnish one link in a chain of recovery.

HOW WOULD RAW MILK SALES HELP?

Just this way: Raw Milk Sales could fill in farmers’ loss of income from other sources and raise land values so that farm use can compete with development use. Raw milk sales can make the difference between a small farmer staying on the land, or going broke, and without any cost to the state or damage to existing interests or markets. Rather, raw milk sales will create a whole new market and keep cash flowing locally.

Let me explain.

About eight weeks ago at a yearly dinner for a farm credit co-operative, I heard some of the saddest words I have ever heard, and they came from the lips of a Southern – Kentucky -- farmer. He was a board member of the co-operative, and he said, "There's no way a boy can go into farming today without a job on the side -- that's just the bottom line."

This man was not an armchair farmer or banker or economist. He was burned red-brown by the sun, and had spent his whole life working to build his dream: a superb 40 head certified Angus herd. Yet as much as he loves farming, he can't see how young Kentuckians and Tennesseans can make a living farming. The economics are all stacked against them. But raw milk sales offer small farmer a permanent new source of revenue.

IS FARM REAL ESTATE ECONOMICALLY VIABLE?

Farmers complain -- and rightly -- that they are being driven off the land by developers. Economically, farm use that pays $100 or $200 or even $300 an acre every year cannot compete with development that pays $10,000 an acre for land.

However, Raw Milk Sales can reverse that pattern for small farmers. The bill before you allows sales of up to 350 gallons of raw milk per week on farm premises. How would that help? The economics are astounding.?

350 gal/week @ $5/gal = $1,750/week @ 52 weeks
= $91,000 cash flow to farmer.

In most parts of Tennessee, a milch cow needs about one acre of pasture. Suppose the farmer can sell his milk for five dollars a gallon (about 60% of the price of organic milk in health food stores). At five gallons each per day, seven cows would produce 350 gallons a week on seven acres, generating a cash flow of $91,000 per year. That means that every one of those seven acres would produce $13,000 per acre, year in, year out.

Using an interest rate of 6% and a 10 year project life, if the farmer could purchase that land for $2,500 an acre, the net present value of that one acre of farmland, used to produce raw milk, becomes $93,181. [1] Now the net present value of an entire 100 acre farm won’t be $93,181 per acre, but the enormous added value of those raw milk acres will be spread over the rest of the farm’s acres. Obviously, raw milk production use enables farmland to compete with development use, and in fact yields far more profits than development.

Critics may say that five dollars a gallon for raw milk is too high. Fine, reduce that to three dollars a gallon, and the calculation looks like this:

350 gal/week @ $3/gal = $1,050/week X 52 wks
= $54,600 cash flow to the farmer

Using three dollars a gallon, the $54,600 yearly cash flow makes that land produce $7,800.00 per acre. Using a 6% interest rate and 10 year project life and paying $2,500 an acre today, the net present value of that one acre of farmland used to produce raw milk, becomes $54,908.

Could small farmers compete with developers, could they make a living, with Raw Milk Sales? You bet they could.

THE NEW AGRICULTURE

Over the last thirty or so years a revolutionary approach to agriculture has arisen all over the world. It is coming to Tennessee, in fact, it’s already here, and it will change everything about the way we farm. My short hand name for it is “The New Agriculture,” although other names are “permaculture” or “sustainable agriculture.” It embodies low input costs, healthy products for niche markets, and small scale vertical integration (sales from the farmer directly to the consumer).

LOW INPUTS

The New Agriculture is environmentally friendly, relying on minimal input costs. For example, it relies more strongly on composting than on petrochemical fertilizers, more on natural weed and pest control methods than on herbicides and pesticides. Most importantly, it relies on feeding meat and milk animals their natural food, grass, instead of much more expensive grain. You can read about the New Agriculture in publications like The Stockman Grass Farmer or Acres USA, or find it in government agencies such as Appropriate Technology Transfer for Rural Areas (ATTRA).

HEALTHY PRODUCTS FOR NICHE MARKETS

The New Agriculture produces clean, wholesome food that does not rely on hormones or antibiotics or herbicides or pesticides. Vegetables are raised organically. Animals are not raised in crowded factory settings that create environmental problems, but are allowed to range free and feed on grass. The resulting healthier product is more expensive to produce, but enjoys an immensely strong demand from its niche “health food” market. One New Agriculture farmer I know in north Alabama who raises primarily chickens charges over two dollars a pound while grocery stores charge less than a dollar a pound, and his customers drive one to three hours to buy his chickens.

SMALL SCALE VERTICAL INTEGRATION

The New Agriculture relies on direct marketing from the farm to the consumer to capture those profits that would usually go to distributors and processors. New Agriculture farmers are not trying to capture a share of existing markets, but are creating all new markets of their own, where before neither customers nor producers existed.

NO FAVOURS FOR RAW MILK

Those in favour of raw milk sales are not asking favours from the state. We are asking for no subsidy, no tax exemption, no administrative bureaucracies, nothing that would cost the state a penny.

Rather, the Raw Milk Sales Bill would benefit all Tennesseans. It would enable a host of energetic, productive, innovative Tennesseans to make themselves independent and self-supporting by serving their local communities.

The Raw Milk Bill does not ask to grant anyone special, new privileges, but would only restore a farmer’s ancient common law right to sell his own produce. That’s why farm commodities sold on the farmers’ premises are already not subject to sales tax: those sales are not a privilege but a right, and by the Tennessee Constitution, the state can only tax “merchants, peddlers, and privileges.’ [2]

The Raw Milk Sales Bill is about restoring freedom. The Freedom to trade without government interference, the freedom to enjoy wholesome, clean food, the freedom to make a living, the freedom to farm and earn a decent living, the freedom our forefathers walked across the mountains to gain for themselves and their children.

THE OLD AGRICULTURE HAS FAILED

The old agriculture has failed. Because we don’t have Raw Milk Sales, the Tennessee countryside looks like a graveyard, filled with the tombstones and ghosts of dairies past -- the crumbling silos and rotting milk barns that dot every road. Why are they there? Because dairymen couldn’t make a living farming. Because the old agriculture made them uncompetitive.

PRESERVING THE FARMING WAY OF LIFE

Everybody is in favour of farming, just like everybody loves motherhood and apple pie. But a lot of sentimental nonsense is blathered around about the family farm and farming as a way of life. Here’s the truth of it:

My family and I moved from urban Shelby County to rural Wayne County six years ago. I have seven children, and six of them -- four boys and two girls -- live and work together on our farm, as one family. Of those six children, four are married with children of their own.

What I have learned in the last six years is that there is an enormous difference between farming and urban people that can hardly be overstated. No other way of life can bring up men of such responsibility, initiative, resourcefulness, honesty, kindness, generosity, independence, courage, and self confidence.

In the 1930s the world famous Tennessee writer, scholar, and professor Andrew Lytle wrote an essay called “The Small Farm Secures the State.” His meaning was this: the small, independent farmer must be the pattern, model, and backbone of society, or a republic of free men such as ours cannot long exist. There is no other way to raise them, certainly not from a rootless urban proletariat that, no matter how prosperous, can never feel that loyalty to country that working and caring for its soil brings.

Gentlemen, for Tennessee’s sake, for your sake, for your children’s sake, for freedom’s sake, I urge you, pass this Raw Milk Sales Bill. Help give us back our farms. Help give us back our lives. Help give us back our freedom.


FOOTNOTES:
1 Using 6% discount rate, 10 year project life, and $13,000 yearly revenue generated. http://www.investopedia.com/calculator/NetPresentValue.aspx.

2 Tennessee Constitution, Article II, Section 28.

[ends]

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