Milton Orr looked across the hills of northeast Tennessee. “I remember when we had more than 1,000 dairy farms in this region. Now we’re under 40,” Orr, an agricultural consultant from Greene County, Tennessee, told me grimly.
That was six years ago. Today, only 14 dairy farms remain in Greene County, and there are only 125 dairy farms in all of Tennessee. Nationwide, the dairy industry is seeing a similar trend: In 1970, more than 648,000 American dairy farms milked cows. By 2022, only 24,470 dairy farms were in operation.
Although the number of dairy farms has decreased, the average herd size—the number of cows per farm—has increased. Today, more than 60% of all milk production occurs on farms with more than 2,500 cows.
This massive increase in dairy farming has an impact on rural communities. It also makes it difficult for consumers to know where their food comes from and how it is produced.
As a dairy expert at the University of Tennessee, I am often asked: Why are dairies going out of business? Well, like the Facebook relationship status of our friends, it’s complicated.
The problem is with prices
The biggest issue is how dairy farmers are paid for the products they produce.
In 1937, the Federal Milk Marketing Orders, or FMMO, were established under the Agricultural Marketing Agreement Act. The purpose of these orders was to set a minimum, uniform monthly price of milk based on its consumption and to ensure that farmers were paid fairly and at the right time.
Farmers were paid according to the amount of milk they harvested, which is still the case today.
Does it become formula? That’s the price of Class 1. Yogurt? Class price 2. Cheddar cheese? 3rd class price. Butter or powdered milk? Class 4. Traditionally, Class 1 receives the highest value.
There are 11 FMMOs that divide the country. FMOs in Florida, the Southeast and the Appalachians are mostly focused on Class 1, or formula milk. Some FMMOs, such as the Upper Midwest and Pacific Northwest, have many manufactured products such as cheese and butter.
In the past few decades, farmers have generally received a small price. Improvements in milk quality, milk production, transportation, refrigeration, and processing have all led to greater quantities of milk, greater shelf life, and greater access to products throughout the U.S. Increased supply reduces competition between processing plants and lowers overall prices.
Along with this increase in production came additional production costs, such as cattle feed, farm labor, animal care, fuel and machinery costs.
Researchers at the University of Tennessee in 2022 compared the price of milk obtained in all regions against the main costs of production: food and labor. The results show why farms are struggling.
From 2005 to 2020, milk sales revenue per 100 pounds of milk produced ranged from $11.54 to $29.80, with an average price of $18.57. At the same time, the total cost of producing 100 kilograms of milk ranges from $11.27 to $43.88, with an average cost of $25.80.
On average, that meant one cow that produced 24,000 pounds of milk brought in about $4,457. However, it costs $6,192 to produce that milk, which means a loss for the dairy farmer.
High performing farms are able to reduce their production costs by improving cow health, reproductive performance and milk supply conversion rates. Large farms or farmer groups—cooperatives such as the Dairy Farmers of America—may also be able to take advantage of forward contracts for grain and future milk prices. Investments in precision technology such as robotic milking systems, rotary parlors, and wearable health and reproductive technology can help reduce labor costs across farms.
Regardless of your size, surviving in the dairy industry requires passion, dedication, and careful business management.
Some regions have suffered greater losses than others, largely related to the way farmers are paid, which means milk grades, and the rising cost of production in their area. There are insurance and protection programs that can help farmers reduce production costs or unexpected price drops. If farmers are taking advantage of it, the data shows it can act as a safety net, but it doesn’t fix the underlying problem of costs exceeding income.
Passing the torch to future farmers
Why do some dairy farmers persist, despite low milk prices and high production costs?
For many farmers, the answer is that it is a family business and part of their heritage. About 97 percent of US dairy farms are family owned and operated.
Some have grown large enough to survive. For many others, the transition to the next generation is a major obstacle.
The average age of all farmers in the 2022 Census of Agriculture was 58.1. Only 9% were considered “young farmers,” aged 34 or younger. These trends can also be seen in the dairy world. However, only 53% of producers said they were actively involved in succession or succession planning, meaning they had at least identified a successor.
How to help family dairy farms thrive
In theory, buying more milk can increase the market value of those products and affect the prices producers receive for their milk. The community has really done that. Milk consumption has never been higher. But the way people consume milk has changed.
Americans eat a lot, and I mean a lot, of cheese. We also eat a lot of ice cream, yogurt, and butter, but not as much milk as before.
Does this mean the US should change the way milk is priced? It is possible.
The FMMO is currently undergoing reforms, which may help stem the tide of dairy farmers’ exodus. The change is focused on better expressing the ability of today’s cattle to produce more fat and protein; reviewing costs incurred by processors of cheese, butter, non-fat dry milk, and dried rinds; and revising the way Class 1 is valued, among other changes. In theory, these changes will bring milk prices in line with production costs across the country.
The US Department of Agriculture also provides support for four Dairy Business Innovation Initiatives to help dairy farmers find ways to keep their operations going for future generations through grants, research support, and technical assistance.
Another way to improve local dairy is to buy directly from the farmer. Value-added or farmstead dairy operations that make and sell milk and products such as cheese directly to customers have been growing. However, these activities come with financial risks for the farmer. Being responsible for milking, processing, and marketing your milk takes the already huge job of producing milk and adds two jobs on top of it. And customers must be financially able to pay a high price for the product and be willing to travel to get it.
Elizabeth Eckelkamp, professor of animal science and dairy specialist at the University of Tennessee..
This article has been republished from The conversation under a Creative Commons license. Read the first article.
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