Dishing on the dairy industry

Thanks to CNN and Fox News and constant exposure to American media, the typical Canadian spends a great deal of time talking about politics in the United States.

The relationship isn’t reciprocal.

Few Americans have dinner table arguments about the Trans-Mountain pipeline or French language issues in Quebec.

However, there’s at least one exception to that rule.

“Canada’s dairy industry is very much a popular conversation,” said Kristine Spadgenske, a dairy farmer in Menahga, Minnesota, in the central part of the state.

Many Americans, especially farmers and folks who work in agriculture, are aware of supply management, possibly because U.S. President Donald Trump has repeatedly attacked Canada for high tariffs on dairy imports and unfair treatment of U.S. farmers.

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Trump’s tweets grab most of the attention, but the actual conversations about Canada’s dairy system are more complex.

Some Minnesota farmers are “totally against” Canada’s quota system for dairy, said Kristine, the treasurer of the Minnesota Milk Producers Association.

Others wish that America also managed its dairy supplies.

“From the circles (of people) that I run around with, there’s some people that think, yep, maybe that’s the way we should go. We should seriously learn from Canada’s industry…. Maybe if we had some of that we wouldn’t have such an oversupply problem,” said Kristine, who runs a 300-cow dairy with her husband Mark and his twin brother, Mike.

The Spadgenskes have four children, including Ryan, 21, who now works at the dairy farm and would like to have a career in the dairy business.

Kristine didn’t say where she stands on the issue of Canada and supply management.

However, another producer in central Minnesota was willing to take a stand.

“I think it works. It works for you (Canada) and you need to keep it,” said Pat Lunemann, who milks 800 cows near Clarissa, Minn.

“Your producers have a good thing going. I would hope that your government wouldn’t throw them under the bus. Our only request, here, is that you stop dumping (milk) powder on the world market.”

Minnesota producers may like to talk about supply management over a beer, but it’s hard to estimate the percentages of pro and con, Kristine said.

What is clear, though, is that she’s worried about the future of Minnesota dairy farming.

Agricultural economists, like Marin Bozic of the University of Minnesota, have predicted that the majority of small, family dairies will soon disappear in the state.

That’s a scary proposition but Kristine agrees with Bozic’s prediction.

“I don’t like it. But I do foresee that (it’s) definitely the evolution of our industry,” she said. “What I think is alarming is that it’s happening very quickly.”

With 300 cows and 1,000 acres for corn silage and hay, the Spadgenske’s dairy farm is relatively large for Minnesota. But it’s tiny compared to the mega-dairies in other parts of the state.

Riverview LLP, a company in Morris, manages 92,000 dairy cows across the U.S. More than 60,000 of the cows are in western Minnesota, where the company operates nine huge dairies, the Minneapolis Star Tribune reported in August.

In terms of economies of scale, just one of those mega dairies (with 7,000 cows) produces 30 to 40 times more milk than a 200-cow dairy.

“All the large dairies — not just the ones in Minnesota, all over the country — they’re just flooding the market with milk,” Heidi Beyer, who raises beef cattle in western Minnesota and helps her parents run a 60-cow dairy, told the Star-Tribune.

“Why are they doing this to other dairy farmers?”

It’s not simply a case of flooding the market. The mega-dairies have lower costs and they make money even when milk prices are depressed – at US $15 – $16 per hundred weight (cwt).

“Some of these larger farms… they’re getting their costs down (to) that $14 to $15 per cwt,” Lunemann said. “Whereas most of our small to medium sized farms can’t do it for that. They’re more in the $16 to $20 per cwt.”

Even Lunemann struggles to compete on cost, because a 3,000 or 8,000 herd dairy is much more efficient than his 800-cow herd.

The Spadgenske’s have survived in the dairy business and are surviving right now, during the rapid period of change, because they run a lean operation with a close eye on costs.

They started their dairy from scratch, with 60 cows, about 25 years ago.

“We had… a rented barn. And the three of us (Kristine, Mark and his brother) lived together in a mobile home,” Kristine said. “We have beaten the odds… and we are quite proud of that fact.”

To keep costs down they maintain a philosophy of continuous improvement, finding small ways to become more efficient.

They have considered doing something more dramatic, like putting in robotic milkers, but they have deep concerns about the up-front costs.

“We carry a pretty low debt load,” she said. “We don’t want to add to our debt load, right now, in a (time) of low prices…. If you add debt that you can’t pay back, that doesn’t make sense.”

The Spadgenskes will continue to evolve and improve their dairy, to pass the farm to the next generation. Meanwhile, Kristine worries about the fate of small dairies because many producers may be in situations where they can’t compete with 10,000-cow farms.

She also worries about consumer perceptions of dairy farming.

If most of the small dairies disappear and are replaced by mega-dairies, the public image of milk and cheese could get ugly.

Dairy farms in Minnesota could soon be denigrated as “factory farms”, even if they are family-run businesses.

“All of the sudden the consumer is seeing these larger farms and (concluding) that these farms aren’t family owned…. Consumers can take that (reputation) away from you. Their interpretation can take that away.”

Public perception could be an issue, but if the Spadgenskes want to compete with the major players in Minnesota’s milk industry, they may have to get much larger.

One option is joining forces with dairy farmers in their part of Minnesota and using their collective capital to build a world-scale farm.

“Not just a few brothers coming together, but maybe 10, 12 or 15 families,” said Bozic, the ag economist. “The capital needed to build a dairy with sufficient economies of scale… is of the order of US$30 to $50 million dollars. Very few families can muster that kind of capital on their own.”

Kristine didn’t mention such an option.

However, she is convinced that American dairy farmers are playing in a global market. Some producers in Minnesota may sell all their milk to the nearby cheese plant. Therefore, they might assume that’s the only business relationship they need to worry about.

But what happens in New Zealand or the European Union, affects milk prices in rural Minnesota, Kristine said.

“We are in a world market. That ship has sailed.”

Consequently, even if Canada abandons its supply management system — there are no guarantees that American farmers will benefit.

It’s possible that a number of mega-dairies could pop up across Canada, which would compete directly with Minnesota dairy producers.

“What would it be like if we opened up Canada into that (global) system?” Kristine asked.

“It definitely would pose some more challenges.”

U.S. dairy snapshot

(All numbers as of January 2017)
Number of milk cows on farms:
California 1.75 million
Wisconsin: 1.28 million
New York 621,000
Idaho 597,000
Pennsylvania 525,000
Texas 500,000
Minnesota: 460,000
U.S. total 9.37 million

Number of dairy farms:
California 1,390
Wisconsin 9,090
Minnesota 3,210
U.S total 40,219

Average herd size:
California 1,250
Wisconsin 140
Minnesota 206
U.S. total 234

Canada dairy snapshot

(All numbers as of January 2017)
Number of milk cows on farms:
Quebec 344,000
Ontario 318,000
Alberta 78,600
B.C. 78,400
Canada total 945,000

Number of dairy farms:
Quebec 5,368
Ontario 3,613
Canada total 10,950

Average herd size:
Quebec 64.0
Ontario 88.0
Canada total 86.3
Sources: U.S. Department of Agriculture, Statistics Canada and Canadian Dairy Information Centre

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