Friday, April 22, 2005

Squeezed the last drop: the vexed economics of small dairy farms

Any day now, Bill Sherwood will shut down his 50-cow dairy farm in Bethel, a stretch of pretty rolling pastureland outside of Boone, a town in the Appalachians of North Carolina.

“I sold my cows to a man in South Carolina,” he told me recently. “I’ll keep milking them until he comes and takes ‘em away.”

As late as the 1970s, there were 15 small dairy farms in Bethel. When Sherwood shutters the dairy business he started in 1959, there will be none. Similarly, the hills of Watauga County once teemed with dairy farms, most of them small in scale. According to Watauga County extension agent Frank Bolick, the county will only have one left when Sherwood retires, Tommy Tester’s 20-cow operation in the Silverstone Community.

The collapse of dairy farming in Watauga County stems from broad trends in the dairy industry and U.S. agriculture generally. Simply put, farmers have seen prices for their goods decline or stagnate, while the cost of doing business rises steadily.

According to the USDA’s Economic Research Service, in the early 1980s it cost farmers $11.90 to produce 100 pounds of milk, which drew an average market price of $13.40. That makes a 1.5 percent return. By the late 1990s, however, the average cost of doing business had actually run ahead of the average price. The economic return to the farmer went negative, to 1.6 percent.

Given those conditions, conventional dairy farmers face two choices: either get bigger, to try to make up on volume what they’re losing in price, or get out of the business.

A recent study by Geoff Benson, an agricultural economist at North Carolina State University, shows that the total number of U.S. dairy farms plunged from about 158,000 in 1993 to under 100,000 in 2001. Smaller farms showed a much higher tendency to go out of business than larger ones. Nationwide, about 15,000 farms in Sherwood’s size class—herds ranging from 30 to 100 cows--went out of business between 1997 and 2002, a 23 percent drop in just four years.

Meanwhile, the number of farms with herds of over 500 cows actually grew during that period, Benson reports. “Cows are being redistributed from small farms to larger ones and average herd size is increasing,” he writes.

Two major factors drive the low price farmers draw for their milk. The first is oversupply. Farmers have been squeezing as much milk as possible out of each cow to offset stagnant prices and rising costs. But doing so has caused a treadmill effect—the resulting glut of milk only makes it cheaper, forcing farmers to drive up production still more.

The second factor is consolidation of processors, the companies that buy the milk produced by Sherwood. The four largest processors buy 60 percent of the milk produced in the United States. In many regions, including this one, a single buyer exists for milk destined for fluid consumption (as opposed to cheese and other processed products). Most of Sherwood’s milk went for processing to Pet Dairy in Wilkesboro, a subsidiary of Dean Foods, the largest U.S. processor.

Dean recently announced plans to shut down the Wilkesboro plant, consolidating its business with another plant in Winston-Salem. Since farmers typically pay for trucking milk to the processing plant, that would have added to Sherwood’s cost burden.

When a single buyer controls a market, it wields tremendous leverage to minimize prices.

It’s not surprising, then, that Bill Sherwood’s son, James, has elected not to take over the farm when his father retires, choosing instead to work a county correctional facility.

“It just doesn’t make sense,” he told me recently. “Our costs keep going up, but the price the company pays stays the same.”

In a future post, I'll discuss ways in which communities can wrest control of dairy production from the mega-processors.


Blogger Kievsky said...

I buy raw milk off a local farm for 2 bucks a gallon and make yogurt and cottage cheese with it. looking forward to getting a cheese press and making cheddar and other types. see

if state law allows it a farmer can have his milk tank have a faucet attachment and people can come in and pay on the honor system and take thier milk. that's what I do. If enough people want to make cheese in the area (lots of fun see ) and are willing to give the farmer 2 bucks a gallon for his milk, he'd definitely stay in business.

but Americans are too damned complacent to do what it takes to save the small farms around them. these small farms could save them WHEN the System breaks down.


4/22/2005 03:00:00 PM  
Blogger Tom Philpott said...

Absolutely agreed. But governemnt regulation does its bit to keep people from buying directly from farmers. In North Carolina as in most states, farmers can only sell sell their raw milk to either processors or people who claim they're using it in animal feed. And they'll shut a dairy down for violating this rule.

Yes, it's absurd. Raw, unprocessed milk is infinitely more healthy than the garbage you get at the grocery store. And I hear tell that it makes some pretty amazing yogurt and cheese, and that it's not bad in coffee either--not that I'd know anything about that, though.

4/22/2005 03:41:00 PM  
Anonymous Anonymous said...

kievsky is spot on in his remarks. I live in a country where dairy farming is one of the principal industries. The milkfat had been sold on to local co-op dairy companies. In the '80s these were consolodated and eventually 'privatised' although the bulk of shares are held by dairy farmers the real power lies with the corporate bosses who are continually pressuring farmers to accept lower returns. The way forward has been to go backwards; that is for farmers to use their produce to make high value added products out of their milk. Soft cheeses premium yoghurts etc. A 50 cow herd cannot hope to break even if its end product is going to be mixed in with 'garbage' milk from mass production farms and end up in plastic jugs on supermarket shelves.
Although many people are conscious of the dangers of too much milk fat there is still a place in most people's diet for high quality occasional foods from local sources. The large dairy enterprises are so polluting it is difficult to imagine that they will remain viable long term as nitrate levels in waterways kill rivers and lakes.

4/24/2005 06:56:00 PM  
Blogger Tom Philpott said...

This comment has been removed by a blog administrator.

4/24/2005 07:00:00 PM  
Blogger Tom Philpott said...

Agreed, although the alleged "dangers" of milk fat appear to be mostly a function of industrial processing

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