Government unveils assistance package to counter soft milk demand and weak prices but it may not save smaller farm
In August, the U.S. Department of Agriculture announced US$350 million in support for dairy farmers, who suffered through soft demand and weak milk prices in 2020 because of the pandemic.
The financial assistance is part of a larger government effort to assist dairy farmers, said U.S. Ag Secretary Tom Vilsack.
“(This is) the first step in USDA’s comprehensive approach that will total over $2 billion to help the dairy industry recover from the pandemic and be more resilient to future challenges for generations to come.”
Vilsack may have good intentions, but the financial help probably won’t save small-scale dairy farmers, with 75 to 200 cows, in places like Wisconsin, Minnesota and Pennsylvania.
Large dairies, with 1,000, 2,000 or 4,000 cows, now dominate the U.S. dairy industry and the shift toward larger operations will continue, says an agricultural economist at the University of Maryland.
Producers with 50 to 200 cows have a massive cost disadvantage, compared to larger farms, and those small farmers will struggle to stay in business.
“Will those types of farms hang on? I think the really small ones, will continue to see a rapid decline in them,” said James MacDonald, who was an ag economist with the USDA before joining the University of Maryland. “I think they’re going to keep going out of business.”
In July 2020, MacDonald published a report on consolidation in America’s dairy industry. Data in the report illustrates the rapid shift toward larger dairy farms, over the last 30 years:
- In 1987, half of all milk cows in the U.S. were in herds of 80 or more, and half were in herds of 80 or fewer. By 2017, the midpoint was 1,300 cows, meaning half of all dairy cows were in herds of 1,300 or larger.
- In 2000, herds larger than 1,000 produced less than 20 percent of all the milk in America. By 2017, large dairies (1,000 or more) produced more than 50 percent of America’s milk.
Such consolidation isn’t unusual in modern agriculture, but the data from America’s dairy industry is staggering.
“I’ve done stuff on consolidation, across all of U.S. agriculture. One of things I say is that dairy really stands out for both the pace of change and the amount,” MacDonald said.
That’s because a basic rule of business, the economies of scale, functions really well in dairy farming. Financial data from Minnesota shows that a large dairy, with a herd of 1,000 to 3,000, has a massive advantage on the cost per cow.
“Large herds produced milk at a lower cost than any other herd size…. The net return per cow was $466 for large operations compared to $295 for all smaller herds,” says a 2017 report from the Center for Farm Financial Management at the University of Minnesota.
The economic advantage of size is most noticeable in Wisconsin, Minnesota, New York and Pennsylvania — where small, family-run farms, with 100 to 250 head, are a huge component.
Those states continue to lose dairies at a rapid pace.
USDA data indicates that America had 34,207 commercial dairy farms in 2019 and 31,657 in 2020. Nearly half of those losses occurred in three states:
- Wisconsin: 7,720 dairies in 2019 and 7,110 in 2020 for a loss of 610.
- Pennsylvania: 5,730 in 2019 and 5,430 in 2020 for a loss of 400.
- Minnesota: 2,730 in 2019 and 2,350 in 2020 for a loss of 380 farms.
To put that in perspective, Manitoba had 263 dairy farms in 2020. In one year, more dairy farms went out of business in Minnesota.
MacDonald isn’t the only economist who believes that small dairies in Minnesota and elsewhere are in jeopardy. A few years ago, Marin Bozic, a University of Minnesota ag economist, said the milk and dairy industry now favours large operators.
“I anticipate that (of the) 3,000 dairy farms left in the state, probably 80 percent will be last generation dairies,” Bozic said. “Minnesota will (still) have a thriving milk production. Unfortunately, the market has changed and many of the current dairy producers will not be able to survive.”
The outlook for small dairies isn’t hopeful because of the cost per cow and that dairy farmers are nearing retirement age. But there’s also the issue of milk pricing in America.
“Most of the people I talk to about milk pricing will concede that it is overly complex and outdated. As the saying goes, “there are only five people who understand milk pricing and four of them are dead,” wrote Bobbi Wilson of the Wisconsin Farmers Union in a blog post this summer.
“Decades of tinkering with formulas has resulted in a system that… (leans) more favourably toward processors over time, while the risks are increasingly shouldered by farmers.”
The farmers union in Wisconsin and in other states, like Michigan, California and Pennsylvania, are pushing for milk pricing reform and a system that is more equitable for small farmers. That discussion will play out over the next couple of years, leading up to the 2023 farm bill in the U.S.
“Over the last decade, nearly half of the dairy farms in Wisconsin have gone out of business,” Wilson wrote. “If we want to create a viable dairy economy and keep family farms on the land, we must explore holistic solutions to milk pricing, competition policy and federal dairy programs. The 2023 farm bill may be our last shot.”
MacDonald didn’t comment on efforts to change milk pricing and USDA support for small dairies.
For now, he’s interested in the future of farmers with 400 to 700 head of dairy cows. Can those producers, in this new category of small, survive in an industry dominated by farms with 2,000, 3,000 or 5,000 head?
Those farms might survive if they adopt robotic milking technology and have other sources of revenue, perhaps from cash crops. But it likely depends on the farmer and how they use the 70 hours per week that they used to spend on milking.
“They’ve got to figure out what to do with all those hours,” MacDonald said. “Will they spend more time on the cropping side of the business?... It’s a possibility for those farms… to get lower costs and do better financially.”