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Home » Explore NH

The Back Story of the Threat of $8.00 per Gallon Milk

By Helen Brody (January 10, 2013)

1/09/2013 Weekly Market Bulletin Guest Column                                                                                                                      John Porter NH Coperative Extension Emeritus, dairy expert

by John C. Porter, UNH Extension Professor, Specialist, Emeritus

As Congress has been struggling in Washington, D.C. to hammer out compromises to establish a federal budget, other details have been slipping by. One was the lack of renewal of the 2008 farm bill. Without that plan, agricultural programs automatically return to rules passed in 1949. Under President Harry Truman’s farm policy, the government bought supplies of a product until it hit “parity”, or a price established from a base period to guarantee a fair rate of return when adjusted for inflation. So in other words, the government would have to buy milk off from the market at this adjusted price to keep supply and demand in balance and return a price to farmers calculated by these economic formulas, which adjusted for the changes in the economy over the years.

The old formulas went back to costs immediately before World War I, so adjusting for a century of inflation would mean that the government needed to pay a milk-support price to farmers of $39.08 per hundred-weight. Some experts extrapolated this to be $8.00 per retail gallon, which may have been a little high. The legislation was quickly enacted so none of this will take place. To put it in perspective, currently dairy farmers are receiving about $20 per hundred-weight and the price of a gallon of fresh whole milk is under $3.50.

The back story which no one is talking about is that this near slip-up exposes how far out of line the milk price paid to dairy farmers is relative to the rate of inflation. Even if we assume the 1949 formula of $39.08 has some flaws and ratchet it down to $30 per hundred-weight, that still shows that dairy farmers are only getting about 60 percent of what they should receive. On a regular basis, conservative economic calcumilklators show the cost of producing milk to be $25 per hundred-weight.

So what does this mean?- Farmers are producing milk below the cost of production, and you the consumer are getting a great deal on one of nature’s most nutritious foods. Unlike some of the competing beverages, milk is a lot more than empty calories. It’s a nutrient-dense food containing calcium, potassium, phosphorous, protein, vitamins A, D and B12, riboflavin and niacin.  Each serving contains: 30 percent of daily calcium needs; 17 percent of protein; 25 percent of vitamin D; and 10 percent of vitamin A.

In the last five years milk prices paid to farmers have ranged from a low of $11.00 per hundred-weight to a high of $22.00. How do they do it? First of all they are hard working individuals with a strong stewardship commitment to their land and animals, and it is difficult to go in and out of the business. Secondly, part of that $25 per hundred-weight cost of production is in depreciation. So it isn’t all a cash expense, but the cost of wear and tear on the equipment, which should be set aside for replacement. Farmers are known for making things last and are willing to use duct tape, baler wire, and quick fixes to put off buying new equipment.

When milk reached the low of $11.00 per hundred-weight, farm families were selling off pieces of the farm, cashing in IRAs, getting second jobs, logging off their woods, etc. to literally survive. People don’t appreciate how much maintaining the family farm contributes to the open space and quality of life that we all enjoy living in New Hampshire. Dairy farming is considered “extensive agriculture”, that is it uses large amounts of land to graze cattle and produce crops. Therefore, it keeps a lot of land open and maintains the country atmosphere. On average it takes about two acres of land to support a cow and her growing, young replacement.

Dairy farming also contributes a lot economically to the state, including:

—Over $50 million dollars in gross product sales annually

—Agricultural tourists spend about $201 million dollars a year

—Over 3,000 people are employed in the production, processing and distribution of dairy products

—Millions of dollars each year in ecological services (purification of water, mitigation of floods, open space for wildlife, carbon sequestration, cycling of nutrients, etc,)

With the growing interest in “buy local”, you can be sure that most fluid milk is a local product. Because it is so perishable, fluid milk is marketed in a close radius to where it is produced. Although packaged under many brand names, milk sold in New Hampshire is produced primarily in the New England region and processed in one of the few local plants.

So the next time you buy a gallon of milk and get just a small amount of change back from a five dollar bill, don’t complain as you are getting a bargain. Buy local and thank a dairy farmer today.

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