As Ohio’s small dairies continue to battle slim to negative margins, mounting regulations and rising input costs, there is growing concern about increasingly limited markets because of a growing trend from milk processors.
The typical milk transport trailer carries 7,000 to 8,000 gallons of milk per load. Small dairies are worried about what seems to be a heavy preference from milk processors that the entire load should be filled from one single farm rather than multiple dairies. That is leaving many “smaller” dairies feeling left out merely because they don’t have enough cows to fill one truckload.
The switch is ultimately being driven by the whims of consumers and adds an additional challenge for small dairies.
“We’ve gotten along just fine until now and then when I hear a processor say they won’t take my milk because it’s not a single load off a single farm, that tells me where all this is going to go,” said Carol Losey, a dairy farmer outside of Middleburg in Logan County. “It only takes one processor. For instance Kroger decided no BST milk — everybody piled onto that within just a few months. Well now we’ve got processors saying no, we don’t want your milk because it ain’t a single load. We’re even thinking of exiting the dairy business because I see what’s coming.”
Looking forward, Losey’s small dairy simply will not be able to compete with larger farms for processors who are only looking for a full tanker per farm stop.
“When Meijer opened up their new plant, the first thing they said to our staff was ‘If you can’t get a single load off a single farm, we don’t even want to talk to you,’” Losey said. “All of the other processors are just going to follow suit — I see it coming. That’s just what they do. And I can understand why, probably. They can get a little better quality milk because just one small farm — one out of 12 on a load — can ruin a whole load. It also makes it really easy to trace back and they want that — to be able to trace it —because there have been a couple instances in the last year or two where it got out of hand.”
That traceability is a key for the increasing demand for specialty dairy products.
“We are now producing milk on emotions from the consumers,” Losey said.
The Dannon Company, known for its yogurt and other dairy products, has made a unique push in recent years with the purchasing of ingredients for their products. This move towards more transparency has included direct sourcing of ingredients, partnering especially with dairy farms to provide their milk. Michael Neuwirth, senior director of public relations for the Dannon Company, said their business is tied in with the ups and downs with the dairy world, a key factor in the change.
“It started for us with the dynamic of volatile price swings from about 2008 to 2010 or 11. At the time, we, like dairy farmers, were challenged by those price swings. And the reason we were challenged by those is when we set a budget forth for a coming year, as does anyone, you plan on certain assumptions. One of those for us is the price of milk and as a result of that, what are we able to accomplish from promotion, expansion, growth — things like that,” Neuwirth said. “The consideration was that we were looking more towards the future from a sustainable development perspective. We saw the consumer interest growing in understanding where food comes from. The third factor was our desire, in terms of our sustainable development, to improve on the environmental impact based on the milk that we use. Without any visibility to the farms where we procure milk, we were challenged on all those three things. One, the economics of it; two, the consumer preference for more transparency; and three, the sustainable development goals that we as a company believe in.”
“So we began in 2010 to develop relationships with farms, dairy farmers, whereby we would be able to source milk directly so that we knew the farmers and we could collaborate openly with them in a new way of working that would address all three concerns,” Neuwirth said.
These relationships allow Dannon to have more influence as a processor on where their milk comes from and what happens between its production on the farm to its sales on the shelf. This includes preferences towards tanker loads of milk from one single dairy versus multiple smaller farms.
“As a result of that type of collaboration which we forged with dairy farmers, we are in a very fortunate position to know where the milk comes from back to the farm, and due to the types of efficiencies that everyone in the model that we’ve created is seeking, single-origin tanker loads is largely now the norm for us,” Neuwirth said. “It’s two things — it’s a target as well as a byproduct — the byproduct of it because the single-origin tanker load is another way to improve environmental sustainability by reducing truck traffic. So maximizing efficiency by milk transport is part of the sustainable development ambition that we have because it’s an efficiency using less truck miles, less oil for transport.”
In addition to it simply costing less, Neuwirth explained it especially helps in relating a certain batch of milk back to a specific farm — something the company may be doing more of down the road.
“It is also an objective because it relates to transparency to understanding where milk comes from for the products we make,” he said. “And today that’s not a consumer communication point, it’s not something that we talk about on our packages or in our advertising, but in the future, presumably that could be a key component — the idea of ‘know your farmer.’”
Neuwirth took time to note that not all of their production comes from farms that can fill up a tanker load. They still do work in some cases with dairy cooperatives that help meet their Dannon Pledge, saying quality and size are not one and the same.
“We see models of co-ops that are aggregating milk and we are working with co-ops, too. So we don’t believe that they’re mutually exclusive,” Neuwirth said. “In order for dairy farmers to be successful in the model we’ve proposed it requires basically an open book plan. For many of them we’re working on a cost plus model to determine the pricing.
“We are happy to work with producers in a direct form, in some cases we’re working with farmers that are in cooperative form. Co-ops organized around the cost-plus model can work well, too.”
Neuwirth also pointed out that global demand for small dairy farms remains strong.
“We’re part of a global company and dairy farming around the world varies tremendously, and it’s not all big. In fact, more than 80% of the milk that we buy from around the world comes from farms with less than 200 cows,” he said.
That fact likely remains less comforting to those small farms here in the United States, however.
“Now in the U.S., that’s probably not the case. The norm is larger, but they’re definitely not mutually exclusive,” he said.
It should be noted that Dannon was one of the more forthcoming milk processors contacted with regard to this story. Meijer declined to talk on the subject due to company policy of not sharing business practices and others did not return inquiries into the matter. Those companies are far from being the only ones feeling the change. Gary Guenther is owner of Guenther & Sons, Inc., a milk hauling business based out of Butler County. He was more frank about what he has seen.
“In my opinion, processors are driving the desire based on quality reasons. They feel that the larger farms have better protocol for herd health issues and quality milk production,” Guenther said. “There is a significant logistics factor involved. The economic cost of assembling a load is much more friendly to the market.”
As someone who sees dairy farmers everyday, Guenther knows extensively about the harsh opinions many small dairies have upon hearing a trend in the industry preferring big dairies over small ones because they can fill a tanker.
“You can hear demand in the marketplace for tighter restrictions and then you can go right out to your customers and hear the immediate reaction,” Guenther said. “Producer reactions is not always so positive, especially with quality premiums being so important to farm income.”
Is there any end in sight to this trend? It doesn’t look like it from the hauler’s point of view.
“Tighter regulations will affect the dairy farmer on both ends,” he said. “And we feel current trends will continue.”
Cooperatives could be one answer for smaller dairies moving forward.
“Dairy Farmers of America markets milk for members of all sizes,” said Heather Schofield, DFA communications manager. “As long as the milk produced by those members meets certain milk quality standards, we work to market that milk in the most effective manner to our customers, regardless of volume.”