Why big­ger isn’t al­ways bet­ter for the Amer­i­can dairy sec­tor

Irish Independent - Farming - - FINANCE -

CON­SOL­I­DA­TION of farms and more cows per farm in the United States has been go­ing on for decades. But the trend to­ward fewer, big­ger farms is now fun­da­men­tally chang­ing mar­ket dy­nam­ics.

“The new re­al­ity is a milk sup­ply that is less re­spon­sive to short-term price shocks since that sup­ply is com­ing mostly from large op­er­a­tions that can with­stand lower prices,” says Ben Laine, se­nior dairy econ­o­mist with CoBank’s Knowl­edge Ex­change Di­vi­sion.

“Smaller dairy op­er­a­tions are find­ing it nearly im­pos­si­ble to com­pete in the com­mod­ity milk mar­ket against their larger coun­ter­parts, so they are forced to ei­ther leave the busi­ness or find a higher value niche mar­ket.”

Laine says the con­sol­i­da­tion ef­fect is self-per­pet­u­at­ing.

Larger dairies are best po­si­tioned to keep pro­duc­ing milk dur­ing price down­turns, which in turn keeps prices low and pres­sures higher-cost, smaller dairies.

Be­cause the in­dus­try doesn’t con­tract milk sup­ply by milk­ing fewer cows, the in­dus­try then be­comes more de­mand-de­pen­dent. And that’s ex­actly what is hap­pen­ing in the cur­rent price cy­cle. Milk prices were poised to in­crease in the sec­ond half of 2018, but re­tal­ia­tory tar­iffs from Mex­ico and China squelched de­mand for US dairy prod­ucts.


The ex­tent of dairy con­sol­i­da­tion has been known for some time. When the last Ag Cen­sus data was re­leased in 2012, large farms, de­fined as those hav­ing 1,000 cows or more, ac­counted for 47pc of the cows in the coun­try.

But be­cause these op­er­a­tions were get­ting more milk per cow, they were pro­duc­ing more than 50pc of the milk.

Back then, those large herds were rep­re­sented by just 1,750 dairies (3pc) out of the 60,000 dairy farms then in op­er­a­tion.

The 2017 Ag Cen­sus num­bers will be re­leased in Fe­bru­ary, and the trend to­ward even more con­sol­i­da­tion is ex­pected to con­tinue. Such con­sol­i­da­tion car­ries its own risks, says Laine.

“The largest risk with a densely con­cen­trated milk sup­ply is dis­ease or nat­u­ral dis­as­ter,” he says. “A dis­ease out­break or nat­u­ral dis­as­ter could quickly im­pact a larger share of dairy op­er­a­tions when it is con­cen­trated in fewer farms.”

Smaller dairy farms, if they wish to com­pete, will need to look to more spe­cialty or niche mar­kets, be they lo­cal, or­ganic or graz­ing in or­der to mar­ket pre­mium prod­ucts, Laine says.

Such a move cre­ates its own chal­lenges and risks. “But for smaller farms, not do­ing any­thing is po­ten­tially the big­ger risk,” he says. © Bloomberg

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