America’s Dairy Farms Are Disappearing: Navigating Pricing Challenges and Industry Consolidation
While the number of dairy farms has steadily declined, the average herd size has increased. Currently, more than 60% of milk production in the U.S. takes place on farms with over 2,500 cows. This consolidation has left a lasting impact on rural communities, making it harder for consumers to trace the origins of their food.
As a dairy specialist at the University of Tennessee, I am often asked why so many dairies are going out of business. The answer is complex, with pricing at the heart of the issue.
The Complicated Pricing Structure
The Federal Milk Marketing Orders (FMMO), established in 1937, dictate how dairy farmers are paid for their products. Milk is categorized by its end use: Class 1 for bottled milk, Class 2 for yogurt, Class 3 for cheese, and Class 4 for butter or powdered dry milk. Farmers are typically paid the lowest allowable price for their milk, and improvements in milk quality, production, transportation, and processing have driven prices down further.
At the same time, production costs—feed, labor, veterinary care, and equipment—have increased. A University of Tennessee study fr om 2022 revealed that the cost of producing milk often exceeds the income farmers receive, leading to financial losses. For every 100 pounds of milk produced between 2005 and 2020, the average cost was $25.80, while the average income was just $18.57.
Efforts to Increase Efficiency
Larger farms are better able to reduce production costs through improved cow health, reproductive performance, and feed-to-milk conversion ratios. Many also invest in precision technologies such as robotic milking systems and wearable health monitors, reducing labor costs. However, even with these efficiencies, the rising costs of production continue to strain the industry.
The Generational Shift
The average age of U.S. farmers is 58.1 years, with only 9% classified as "young farmers" aged 34 or younger. In the dairy sector, this generational gap poses additional challenges, as only 53% of producers have succession plans in place. Transitioning dairy farms to the next generation has become a significant hurdle, especially as the financial viability of these operations diminishes.
Finding Solutions
Dairy consumption has evolved. While Americans consume large amounts of cheese, ice cream, and yogurt, liquid milk consumption has declined. This shift raises questions about the need for changes in milk pricing structures. The FMMO is currently undergoing reform to better align milk pricing with modern production costs and market demands.
In response, the U.S. Department of Agriculture (USDA) is supporting four Dairy Business Innovation Initiatives, providing grants, research, and technical assistance to help dairy farmers remain viable. Additionally, there has been a rise in value-added operations, wh ere farmers process and sell dairy products like cheese directly to consumers. While these ventures offer higher profit margins, they also carry increased financial risks, as farmers must manage not only production but also processing and marketing.
