AS DAIRY TRANSITIONS TOWARD THE HOG MODEL, WILL THE SUN SET ON THE LARGE FAMILY DAIRY FARM ERA?

Chad Dechow
Associate Professor, Dairy Cattle Genetics
Department of Dairy and Animal Science
The Pennsylvania State University

Conventional wisdom maintains that large family farms are the future of the dairy industry. A 2003 Cornell University study used historical dairy industry data to project the future structure of the US dairy industry and concluded that the number of farms with fewer than 100 cows would decline by 92% from the year 2000 to the year 2020. The conclusion from many when they see such projections is that small farms are a thing of the past and that milk will be produced predominately on large family dairy farms in the future. I believe that is likely to prove incorrect and that we may witness the end of the large family dairy era.

Models attempting to describe the future of the dairy industry, like the previously mentioned study, have extrapolated past dairy trends into the future. We would be well served to also consider trends in more mature industries, like the hog industry. Figure 1 below shows the proportion of the nation’s hog farms by different size classes and the proportion of pork that those size classes produce.

FIGURE 1.

Seventy percent of hog operations are in the smallest size category reported by USDA, but they produce a small amount of our nation’s pork. The number of small hog operations is quite stable. The important trends for understanding the future of our larger size family farms are the middle categories. They have experienced a decline in both the proportion of operations and proportion of pork produced. Even the 2,000 to 4,999 hog class has peaked and begun to decline in both categories over the past three years. The hog model is one with many small farms raising a small amount of the nation’s hogs, and a few large production facilities producing the majority of hogs. Can we expect to see the same for the dairy industry? We can see the beginnings of such a move in the dairy industry version of our hog chart.

FIGURE 2.

Obviously, the dairy industry is not as far along the consolidation path as the hog industry, but the underlying structure is there and will accelerate given the terrible state of our dairy economy. As in the hog industry, the large majority of farms are in the smallest size class. This does not mean the number of small farms has remained stable. The total number of dairy farms has declined by nearly 40% this decade, with small farms numbers declining at more-or-less the average rate of the other size classes. The continued large proportion of small farms is where most prognosticators have been wrong in the past. In the Cornell study, they predicted the number of farms relatively accurately for size classes >100 cows, but underestimated by 55% the number of small farms we have at this point. There are many reasons the smaller farms will hang on far longer than some suppose. First, we underestimate the commitment of many to the small farm lifestyle. Young people that want to begin farming have little hope of procuring the finances needed to immediately establish a large farm, so they will start small. Small farms often produce milk more cheaply than their larger counterparts as well (at least when the “opportunity cost for unpaid family labor” fudge factor is not considered).

The second hog-industry-like trend we are beginning to see is the shift away from the middle categories, which is where our large family farms reside. A closer look inside the numbers reveal that farms with 500 to 999 cows have not increased for the past decade and the 1,000 to 1,999 class has plateaued. The percent of our nation’s milk produced by those size classes peaked in 2005 and 2007, respectively. And so, this is why I think the large family dairy farm model is in peril. It’s not that I think evidence suggests a revival of small family farms, but that the large family farm era was simply a step along the path toward real consolidation. The current low milk price cycle is accelerating this trend. Bankrupt 1,000 or more cow dairies are being bought at low cost. We will soon see management groups that control >100,000 cows – some are over halfway there now.

Where we will differ from the hog model is that there will be less concentration at single sites, and more spread across satellite operations. The question is whether consolidation for the northeast will come from northeast producers purchasing satellite dairies, or whether our western counterparts will push further east. I expect more of the first scenario, but there is some movement toward the second as well. Trends in the northeast will be slower than elsewhere, partly because we don’t have available land to facilitate a large number of such farms as readily as western states. I’m not sure whether Pennsylvania will arrive at the consolidated dairy farm model more slowly than other states, or simply slide down the list of top dairy producing states.

Many see this trend as not only a fact of life, but a very good development. It’s easy to become enamored with multi-million dollar businesses. These businesses are economically efficient and can compete in a global market. They employ brokers to contract their milk and feed prices, and have locked in a profit for the next 18 months. Many of these multi-site farms are managed by truly terrific families and upstanding citizens. For that reason, it is not easy to suggest that further dairy consolidation is something we do not want, but we must consider what happens when this type of agriculture takes hold. The effect of agricultural intensification on rural economies has been well documented, and it is not favorable. Consider for instance the nation’s largest county in terms of dairy sales. Tulare County in California is the capital of large dairy farms. The county’s dairy farms averaged over $6 million in sales in 2007.  It also had the highest poverty rate (23%) of all California counties in 2007, nearly double the state’s average. Moreover, a highly consolidated industry makes it very difficult for young people to enter production agriculture. It is impossible to have a discussion about the relationship between farm structure and the health of our rural communities without offending some of our friends and colleagues, but it is a discussion we should be willing to have.

Our 500 and 1,000 cow farms are not going to all disappear, just as many 50 cow dairy farms are still around. Such farms are not, however, a large part of the US dairy industry’s future if the current trend holds. It is disappointing to see a large family farm not make it because they were heavily invested in trying to position their family for a long term future in the dairy industry. Are we willing to take the steps necessary to save our family-farm model, or are we content with the direction we are now headed?

3 thoughts on “AS DAIRY TRANSITIONS TOWARD THE HOG MODEL, WILL THE SUN SET ON THE LARGE FAMILY DAIRY FARM ERA?

  1. Sadly, I think it’s becoming too expensive and not profitable enough for large families (any family, really) to sustain themselves merely by dairy farming. With the commercial farms bulk producing, it’s hard for small family farms to compete. I really wish it were different.

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