The Decline of U.S. Dairy Farms: A Crisis of Sustainability and Pricing

Milton Orr, an agriculture adviser in Greene County, Tennessee, reflects on the dramatic decline, recalling a time when his county had over 1,000 dairy farms. Today, only 14 remain, mirroring a nationwide trend. In 1970, the U.S. had over 648,000 dairy farms, but by 2022, that number had dwindled to just 24,470.

While the number of farms has declined, the average size of herds has grown. More than 60% of all U.S. milk production now comes fr om farms with over 2,500 cows. This consolidation has helped keep overall production stable, but it has come at a cost, particularly for rural communities and consumers who are increasingly disconnected from knowing wh ere their food originates.

The Complexities of Dairy Pricing

One of the biggest challenges facing dairy farmers is the pricing structure for their products. Dairy farmers are paid based on how the milk is used, following the Federal Milk Marketing Orders (FMMO) established in 1937. Milk destined for bottled use (Class 1) commands the highest price, while milk used in products like butter or powdered dry milk (Class 4) garners lower prices.

However, even as improvements in technology and efficiency have led to greater milk production, prices paid to farmers have stagnated. Researchers at the University of Tennessee found that between 2005 and 2020, the average milk price received ranged fr om $11.54 to $29.80 per 100 pounds of milk, while production costs ranged from $11.27 to $43.88. On average, farmers were losing money—producing $4,457 worth of milk per cow annually while incurring costs of $6,192.

Larger farms with greater efficiency have been able to weather these financial challenges by optimizing cow health and adopting technologies like robotic milking systems. Cooperatives like Dairy Farmers of America have also leveraged forward contracting to mitigate fluctuations in grain and milk prices. However, these strategies have not been enough to offset the rising costs of production.

Family Farms Facing Additional Hurdles

Despite these challenges, many dairy farms persist because they are family-owned and operated businesses, representing a legacy passed down through generations. Ninety-seven percent of U.S. dairy farms remain family-run, but succession planning is becoming increasingly difficult. With the average age of U.S. farmers now at 58, only 9% of dairy farmers are considered "young farmers" under the age of 34. Transitioning ownership to the next generation is a growing challenge, and fewer than 53% of farmers have succession plans in place.

Looking Toward Solutions

Several initiatives are underway to address the struggles facing the dairy industry. The U.S. Department of Agriculture is in the process of reforming the FMMO system, which could better align milk pricing with the cost of production. The reforms are expected to update how Class 1 milk is valued, incorporate modern advancements in milk production, and adjust the cost support processors receive for products like cheese and butter.

Additionally, the Dairy Business Innovation Initiatives provide grants, research, and technical assistance to help dairy farmers innovate and find new revenue streams. One growing trend is value-added or farmstead dairy operations, wh ere farmers produce and sell their own milk and dairy products directly to consumers. However, this model requires significant financial and operational commitment from farmers, who must manage production, processing, and marketing, while relying on consumers to pay a premium for locally produced goods.

As the U.S. dairy industry continues to evolve, addressing pricing structures and supporting sustainable farming practices will be critical to ensuring the future of American dairy farms.