Milk swirl.
August 9, 2018

Pennsylvania’s Dairy Conundrum

 |  By: Dairy Talk

About 20 years ago, I wrote an editorial about Pennsylvania dairy industry stagnation, pointing out that if the state wanted to remain competitive it would have to grow both the size and productivity of its dairy farms.

 

The column appeared at a time of depressed milk prices, much like to day. No sooner had that magazine hit Commonwealth mailboxes, a Pennsylvania dairy farmer called me and started screaming at me in language I doubt his pastor would have approved. But his point, between and among the obscenities, was that the last thing Pennsylvania or the country needed was more milk.  He pointed out I was an idiot (I’m paraphrasing) for even suggesting such a thing.

 

Fast forward those two decades, and the Pennsylvania Department of Agriculture and the Pennsylvania  Center for Dairy Excellence has again commissioned a study to “Support Growth and Competitiveness of the Pennsylvania Dairy Industry.” The issues are much the same as they were in the late 1990s.

 

While Pennsylvania still ranks as the sixth largest milk producing state, it is doing so only on the strength of cow numbers. Milk production per cow ranks 29th in the nation at 20,834 lb., or 9% below the national average and 13% less than neighboring New York. Growth in Pennsylvania’s milk production per cow has averaged just 0.77% per year since 2000 while New York’s per cow productivity is 2.2%, or almost three times faster.

 

Pennsylvania, the sixth most populous state in the nation, has long relied on the Class I fluid market to underpin its milk prices. But as fluid sales have declined, so too have Pennsylvania mailbox prices. “Pennsylvania has essentially lost 15% utilization in Class I over the last seven years, approaching the national average,” says Rod Goodling, an Extension associate in the Department of Animal Science at Pennsylvania State University.

 

“With relatively constant Class II and III utilization, the Class I loss has gone to Class IV, resulting in weaker than normal prices in Pennsylvania,” he says. Explanation: Class IV is typically the lowest priced class, resulting in the lower blend price.

 

“As this price shift continues, dairy operations will need to be strategic in reducing their cost of production to be more competitive in a non-Class I environment,” Godling says.

 

In other words, dairy farms need to improve productivity in terms of milk per cow and milk sold per farm. Farmers also need to be willing to help themselves. Less than 60% of surveyed Pennsylvania dairy farmers report using financial consultants or accounting services, only 16% report having a written business plan, and less than 15% have ever participated in risk management education or used risk management programs (other than crop insurance or the Dairy Margin Protection Program).

 

Another solution is to attract higher-value processing such as Class II yogurt plants or specialty cheese plants to the state. The study points out that a couple of 2 million pound per day specialty cheese plants “near State College and Reading would result in the largest reduction in supply chain costs, and thus indicate the strongest incentives for new processing capacity.”

 

But attracting such plants will be tough in a state where milk per cow and milk per farm is mediocre at best, and nearly 60% of surveyed farmers have no desire to grow. There are no fast nor easy solutions to Pennsylvania’s conundrum. But if Pennsylvania farmers are willing to listen, they can take lessons from the Midwest.

 

If you look at the turn around in the Midwest dairy industry over the last 20 years, particularly in Wisconsin, that revival has been farmer led and farmer driven along with help from industry and government. While Midwest farmers are struggling in the current price environment like everyone else, their modernized facilities and higher productivity give them more resilience and survivability long term.

 

You can read the full 193-page report on Pennsylvania’s dairy industry here: https://dairymarkets.org/Growth_and_Competitiveness_Study_DRAFT_Final_Report_June_2018.pdf

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