KNOX, Maine — Galen Larrabee of Knox sat down last week and checked the expense ledgers for his 490-cow dairy farm. Over the past 10 months, it hasn’t been a pretty picture.

Feed costs have gone through the barn roof — up by a third over last year at this time. Fuel costs could be doubled by the end of the year. Energy bills — mostly electricity — have been running $6,000 a month.

“We spent $730,000 on grain last year,” Larrabee said. “This year it will be close to a million. Fuel for the first 10 months of 2011 has been $103,000. Last year it was $72,000. We’re paying our bills but there is not a lot left over.”

In the 1950s, Maine had 51,000 herds of dairy cattle. Today there are 304.

But in the overall picture of New England dairy farming, Maine stands out and is considered a success story because of a dairy stabilization program put in place in 2004. Since the installation of the program, called the tier program, Maine has lost 75 dairy farms, or 19 percent of the industry. But the extreme losses in Vermont (52 percent) and New Hampshire (46 percent) over the same time period, show that the Maine program is working.

The tier plan, officially called the Maine Dairy Relief Program, provides a safety net intended to protect farmers when prices wobble. It provides a payment from the state’s General Fund directly to farmers when the amount that they receive from the marketplace for their milk falls below their cost of production.

In Maine, the cost of production is estimated at $25 per hundredweight of milk, while the farmer can receive between $11 and $23 per hundredweight from the marketplace. The program has four levels of production, depending on farm size, and each tier has a different target price. To fund the program, milk-handling fees are collected by the Maine Revenue Service from milk processors and deposited in the General Fund, from which payments are disbursed. If the price of milk is high, no payments are made. When it drops, the program assists the farmers. Since 2007, $30 million has been paid to Maine’s dairy farmers through the tier program.

“Compared to states without a milk commission and a tier program, Maine is a relatively healthy dairy state,” Julie Marie Bickford of the Maine Dairy Industry Association said last week. “There is an ebb and flow in prices, fuel and feed costs and number of farms, but, for the most part, Maine is stable and the critical mass remains.”

Larrabee, with 490 cows, is considered one of Maine’s larger dairymen, but he certainly isn’t unique. “Most dairy farms, about 50 percent I think, are just about breaking even,” he said. “The other 50 percent are behind the eight ball.”

With the cost of equipment, taxes, feed, veterinary services and infrastructure all jumping higher and higher, Larrabee said, it isn’t right to use the word “profit” when discussing Maine farms. “Most are just holding on.”

Larrabee said Maine’s dairy industry would be in a very different place without the tier program.

“This program has effectively slowed the loss of dairy farms in Maine,” Tim Drake, executive director of the Maine Milk Commission wrote in a recent policy paper for the Margaret Chase Smith Center. “Although overall farm numbers have declined, the number of pounds of milk produced by Maine dairy farms has remained relatively stable. There is no doubt that the price-stabilization program has helped secure a future for many dairy farm families. It has provided a safety net for many farmers on the verge of shutting their doors and has provided a window of opportunity for interested, younger farm

families to begin dairy farming.”

In August, a U.S. Department of Agriculture food report stated that a brutal combination of heat, drought or flooding in the Midwest corn and grain production belt diminished corn, soybean and wheat harvests. This, along with the increasing amount of corn being diverted for ethanol production, is forcing animal feed costs higher and higher.

The price of corn, the main ingredient in livestock feed, has climbed 71 percent in the past year, according to the USDA.

Despite skyrocketing output costs, Bickford, Larrabee and Drake join dairy experts across the country in blaming a failed federal pricing system for damaging the industry. The system sets milk prices based on the price of cheese on the Chicago Mercantile Exchange commodities market.

“As long as we have a federal system where the price of milk is based on a speculative market of processed goods, the system will not work,” Bickford said. “That system favors very large mega-farms, 25,000 head farms sitting next to a cheese plant. That is not Maine’s style of agriculture.” Ninety percent of Maine’s dairy farms have 75 cows or less.

Bickford said dairy pricing policy is a hot topic these days in the congressional halls in Washington, D.C. “Maine is finally getting some traction and the USDA is listening to the idea that milk should be priced at market value. It should reflect the going rate in competitive regions.”

“Currently, changes to milk-pricing policy are being proposed on a national level — from the National Milk Producers Federation’s ‘Foundation for the Future’ proposal, to the Maine Dairy Industry Association and Dairy Producers of New Mexico proposal — for a Competitive Price Formula to replace Class III [cheese] end-product pricing formula,” Drake said in his report.

Change may be slow, Bickford said, but as long as Maine’s tier program remains in place, there is a future for dairy farming in Maine. “The tier program has been achieving its policy objective,” she said. “It is a safety net.”

Larrabee is also encouraged by the support Maine consumers have provided. “People in Maine have always spent more on dairy than other parts of the country,” he said. “They want farms. They want the countryside to remain intact. They actively support us.”