ERS studies dairy consolidation

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ERS studies dairy consolidation

A new report from USDA shows dairy farms have consolidated at a faster rate than any other ag sector.

“We see consolidation throughout almost all of U.S. agriculture, but dairy is really at the extreme.”

Jim MacDonald with the Economic Research Service tells Brownfield 30 years ago half of the nation’s dairy cows were on farms with 80 or fewer cows, today that number has grown to 1,300.

“We see a little bit of that in some other livestock businesses like eggs or hogs, but that’s just really striking and much more powerful and much more of a rapid shift than we see anywhere in crop production.”

For the past 30 years he says there’s been a long-term trend toward larger dairy farms because of the cost advantages.

“But, there are small commercial dairy farms that have continued to be financially viable.”

MacDonald says those farms are managed extremely well, are in an ideal location or have diversified into other activities. He does expect smaller farms with 10 to 200 cows on average to continue to be under financial pressure and says numbers have been steadily declining throughout the last 30 years.

In the last decade, farm numbers have also been shifting toward the Upper Midwest.

“In the traditional dairy states like Minnesota, Wisconsin, Michigan, and Indiana in the Midwest and New York, Pennsylvania, and Vermont in the Northeast.”

Dairy farm numbers are half of what they were 30 years ago, which MacDonald says it part of the trend.

“It falls every year.  Generally speaking, it falls on average about four percent a year.”

But from 2017 into 2019, there was a significant acceleration of dairy farms closing after extended low margins.  The rate of exits jumped to 10 percent in some states like Wisconsin and even up to 13 percent in Michigan.

MacDonald says older farmers are also leaving the business without a successor which adds a continued source of consolidation whereas larger operations typically have multiple partners who can run the business. 

The survey, done in 2016, did show a financial advantage for organic farms which found small farms were profitable while conventional farmers had much weaker balance sheets.  But MacDonald says the transition is very difficult, costly, and processing opportunities could be limited.