Milking It for All It's Worth: The Fall of the Dairy Industry
While some food banks were experiencing a 326% increase in requests for food due to the COVID-19 crisis, farmers were paradoxically dumping thousands of gallons of milk across North America. Although the pandemic exacerbated the industry’s demise, the dairy industry’s current crisis is all but surprising given longstanding consolidation issues and falling demand for milk. This crisis will not be solved by the free market alone; the dairy industry’s survival relies on extensive government intervention.
The dairy industry is a crucial economic sector, accounting for 14% of global agricultural output and providing livelihood to 150 million farmers across the globe. However, in the past two decades, the industry has struggled with falling demand for fluid milk. In the United States alone, demand for fluid milk has decreased by 26% since 2000. Health and environmental concerns have led consumers to seek alternatives, with 41.3% of American households purchasing non-dairy milk and former dairy consumers like Starbucks encouraging their customers to shift to eco-friendly non-dairy milk.
The dairy industry is also facing difficulties on the supply side, with record-breaking low prices driving dairy farmers and processors to bankruptcy. The price of milk has partially decreased due to a shift towards vertically-integrated dairy supply chains, with grocery stores like Walmart deciding to process their own dairy products. Grocers started producing cheap dairy items, frequently at a loss, which served to attract more customers into their stores and away from more expensive, dairy-farmer produced milk.
Not only have grocery chains exerted significant downward pressure on the price of milk, but technological advancements have also decreased the cost of producing milk for large farms that can afford to upgrade their technology. Smallholder farmers with more antiquated methods are left unable to compete with farming corporations, causing the number of smaller farms with 200 to 900 acres to decrease by 44% between 1987 and 2012, while the number of farms with more than 2000 acres doubled between the same time period. In addition to falling prey to price competition from large farms, smallholder farmers are facing increased competition on the global market; in fact, global dairy production has increased by 59% in the past three decades, leading to increased supply and lower prices.
Social distancing measures imposed by the COVID-19 pandemic only worsened the dairy industry’s financial sustainability. As half of American consumers’ food budget is spent eating outside of their homes, the closure of schools and restaurants led U.S. milk supply to exceed demand by at least 10%. While an excess of dairy products might seem like the perfect solution to the hunger crisis ravaging America, farm-fresh milk is often an unsuitable candidate for food bank donation. Farmers and processors don’t have the machinery to transition from wholesaler to retail packaging, and would have to spend millions of dollars to shift from packaging cheese wheels or milk kegs to sliced cheese and 2L milk bags. Due to the perishability of milk and storage and donation constraints, farmers have consequently been forced to dump thousands of gallons of milk, driving the industry even further into financial crisis.
The ongoing dairy industry crisis affects not only dairy farmers, but also the rural communities that surround them and depend on the industry as the local economy. As one of the largest global dairy producers, the state of Wisconsin has been one of the hardest-hit victims of the dairy industry crisis; after facing a population decrease across two-thirds of its rural counties, the state is wrestling with fewer jobs and weakened economies in the state’s rural areas.
The American government has provided a $16 billion to aid dairy farmers during the COVID-19 pandemic through the CARES Act. However, most of this funding has gone to large-scale dairy farmers who can afford to sell low-priced milk, rather than failing smallholders. Several smallholder farmers have responded to the industry’s demise by transitioning to organic milk, which can grant farmers a price premium. As a result, the number of organic farms has increased by 58% in the United States between 2011-2016. However, the transition to organic is expensive, and smallholder farmers who are near bankruptcy are unable to afford it.
Other farmers have responded to the fall in demand by processing A2 milk, which lacks the protein that causes dairy intolerance. This innovation aims to stop the 65% of Americans that are lactose intolerance from shifting to non-dairy alternatives. However, with nearly half of American households already purchasing non-dairy milk, A2 milk is not the solution to the crisis.
To maintain the livelihood of smallholder dairy farmers and the rural communities that depend on them, extensive government action and direct assistance to smallholder dairy farmers is required. If absent, the United States would do well to follow Canada’s lead by implementing a supply management system to inhibit excess supply and to lower prices. Although Canada’s dairy supply chain model has shown that supply limits result in higher prices for consumers, this model prevents overproduction and provides a stable income for farmers.
Governments must also limit consolidation and monopolization in the dairy industry. In the United States, antitrust laws in the dairy industry were redirected to prioritize consumer’s desire of low dairy prices. However, this consolidation drives smallholder farmers into bankruptcy and results in environmental degradation with large-scale dairy farming contributing to climate change and contaminating groundwater.
It’s important to note that while the government should provide financial assistance for small farmers, changing consumer attitudes towards dairy have resulted in a decreased need for dairy farms. As a result, the American administration must also proactively provide financial and educational resources to help farmers adapt their land and skills to other crops, animals or alternate uses in keeping with consumer preferences for non-dairy alternatives. An example of this governmental assistance is Wisconsin’s Department of Agriculture’s programming, which helps farmers convert their land to farm-to-table restaurants, petting zoos, or bed and breakfasts. Given the COVID-induced transition to domestic and local tourism, transitioning to the hospitality and leisure sector might prove to be a promising venture for farmers that allows them to remain connected to their animals and to their land.
Despite a rise in demand for cheese and yogurt, the dairy industry will continue to be threatened by consolidation and the rise of plant-based alternatives. Nevertheless, the government must not leave smallholder farmers on their own; instead, struggling dairy farmers should be recognized as integral to the fabric of rural communities in America’s heartland, and should be given the education, resources, and protection from oversupply so they can continue to provide economic value to their rural communities.