Down on the Dairy Farm
Jeff Mulhollem
Penn State College of Agricultural Sciences
Writer
How can Pennsylvania’s small dairy producers survive in a changing agricultural economy?
Jay Houser has been a dairy farmer his entire life. In his 67 years of farming, he’s seen the transition from horses to tractors, and from hand milking to robotic milking. Through it all, small family farms have been the backbone of the Pennsylvania dairy industry.
He isn’t sure they can survive another seven decades.
Houser, a past president of the Pennsylvania Holstein Association, has made a success out of his 540-acre farm 20 miles east of State College in Centre County with hard work, astute business dealings, careful breeding, and—perhaps most important—a family that is also committed to dairy farming. With his wife, Mary, son Jim and daughter Karen, who handle most of the milking of their 75 registered Holsteins these days, and another daughter who helps around the farm when needed, Houser’s Penn-Dell Farm is truly a family affair.
Most small dairy farms depend on family labor. “Without your family helping, it’s hard to accomplish anything,” Houser says. “When it’s hard to find somebody reliable to work for eight hours, you just can’t ask somebody to work 12-hour shifts. If Jim had decided not to work on the farm, we couldn’t have stayed in business.”
Increasingly, children who grow up on a dairy farm are deciding not to stay in the business as adults, and that’s a key reason why nearly 5,000 farms have disappeared from Pennsylvania in the last 20 years. The trend confounds and distresses many farm parents, who often have no choice but to sell their assets to another farm, but Houser believes the main reason for the trend is obvious.
“Most kids are not returning to the farm because of the lifestyle they saw their parents lead, putting in 12 to 14 hours of hard work each day,” he says. “On the farm, there are no days off, and it’s awfully difficult for farm kids to see their classmates have every Saturday and Sunday off.”
Small farms in a big industry
Sixty percent of the state’s dairy farms are considered to be small, having 30 to 100 cows, with an average herd size of 58. With their weathered wooden barns, towering silos, and lush pastures, small dairy farms have long been a fixture of the Keystone State’s rural landscape. They have also been disappearing at an alarming rate. According to the Pennsylvania Department of Agriculture, the state has 9,600 commercial dairy farms, down from 14,500 in 1980.
The economic factors underlying the loss of farms are simple. “Some producers can get more milk from cows than others, and some can control costs better than others,” says agricultural economist Ken Bailey, who studies milk prices and other economic issues affecting Pennsylvania’s dairy industry. “The ones who can are getting bigger, and the ones who can’t are going out of business, so we have fewer farms each year. It’s a national trend that started after World War II, because of competition. But Pennsylvania is not losing farms any faster than other states.”
In fact, Pennsylvania remains the nation’s fourth largest milk producer, after California, Wisconsin, and New York. In 2000, Pennsylvania generated 6.7 percent of the nation’s milk—11.16 billion pounds—with 617,000 dairy cows. However, the state ranks 12th in milk production rate, the measure of how much milk on average each cow produces, at 18,081 pounds per cow per year.
Pennsylvania’s geographic position creates some unique opportunities for producers. Because of the state’s proximity to population centers—60 percent of the nation’s population is within a day’s drive of Pennsylvania—much of Pennsylvania’s milk is sold as fluid. “That means Pennsylvania dairy farmers get higher prices for their milk than farmers in the Midwest, where most milk goes for cheese and other products,” Bailey notes.
That fact is one of many reasons the outlook for the dairy industry in Pennsylvania as a whole is extremely positive, but experts say smaller farms must adjust if they are to share in the industry’s bright future.
Large and small—and interdependent
For centuries, the sight of small, family farms has been a key component of the beauty of rural Pennsylvania. “If we lose all the small dairy farms, we would lose a piece of our heritage, a part of our culture,” says agricultural economist Jeff Hyde. “It would change the landscape of our state. Small, family farms are picturesque.”
However, the survival of smaller dairy farms isn’t just a question of aesthetics, it’s a critical economic issue. “The state’s dairy industry needs all its farms, small and large alike, to survive,” says Alan Bair, the college’s director of dairy industry relations.
Without enough farmers, big and small, the state’s farm-service infrastructure—including tractor sales, parts and service, veterinarians, artificial inseminators, feed dealers, and agricultural finance institutions—won’t have enough business to prosper.
“Producers in northeastern Pennsylvania are already seeing the reduction of infrastructure,” says Bair. “They have to travel much farther for parts, service, and feed. And once the infrastructure leaves, it doesn’t come back.”
Vinton Smith, dairy management extension agent based in Adams County, has also seen evidence of the disappearing infrastructure in parts of Pennsylvania. He recently talked with a Tioga County dairy farmer who had to drive 200 miles to Lancaster to get a part for a piece of equipment. “Pennsylvania’s small farms are a vital part of the makeup of our industry,” Smith says. “We need that balance of small farms and large farms. If we only had a few large farms in our state, we wouldn’t have an infrastructure supporting farming.”
“The largest dairy producers in Pennsylvania are perhaps most concerned about the overall reduction in farms,” says Bair, “because they know that we must increase milk production as a region to keep the infrastructure and milk-processing plants here. And large farms can’t do it alone.”
The existing processing and marketing infrastructure in the Northeast has created an immediate demand for an additional 2 billion pounds of milk per year. “Milk processors will build their plants wherever the milk supply is, and Pennsylvania needs to produce more milk to keep the processing plants here. Otherwise, the plants will move to other regions, such as the West and Midwest.”
In short, the Northeast is desperately short of milk production, and that creates opportunities for all dairy farms, large and small. “Both small and large farms have the opportunity to increase milk production per cow and net farm income per cow,” observes dairy scientist Lisa Holden. “Pennsylvania producers have the opportunity to maximize their investment and make up much of the milk deficit in the Northeast.”
Survival of the most efficient
Smith believes increased efficiency is the key to producing more milk—and to the survival of small dairy farms in Pennsylvania. “Small farms don’t necessarily have to add cows to produce more milk,” he explains. “Pennsylvania ranks 12th in milk production per cow in the country. With all other things being equal, improving our management practices can make a big difference in production.
“All small dairy farms don’t have to get bigger to stay in business. There is a very clear trend indicating that many smaller farms are getting bigger. However, getting bigger without improving first can lead to greater problems.”
Small dairy farms may not have to get bigger, but they do have to become more efficient. “Farmers have to get all the milk they can out of the cows,” explains Jeff Hyde, who has collaborated on workshops on farm efficiency and business analysis around the state. “They have to get better at managing all the different facets of traditional dairy farming, such as growing feed, rearing heifers, and milking.”
Hyde urges small producers to think like owners of big businesses. “They need the same focus on business management and human resources that the large farms have,” he says. “My job is to help sharpen the business management skills of farmers, and the majority of those are small dairy farmers. One of my goals is to help them assess the costs and benefits of technology, such as robotic milkers—and ultimately to help them make more money.”
One secret of efficiency is for farmers to understand the return they are getting on their investments. For instance, it might not make sense for a farmer to raise feed if it can be purchased economically—instead, the farmer can devote time that would have been spent raising crops to the parts of the business that make more profit. “Farmers need to spend more time thinking about what they are getting back for the time and money they are spending,” he says. “Many small farmers spend so much time planting, milking, and raising cows that they don’t get the time to step back and ask themselves, ‘What does this mean for my business?’”
Those producers who do find ways to make their operations more efficient can prosper in the current market for milk products. “There are some pockets of very progressive, very successful farms in Pennsylvania that happen to be small,” notes Bailey. “There’s a great market out there, but it is unrealistic to expect any business to succeed by doing things the way it did 20 years ago.”
Houser is a believer in increase defficiency. His herd has been carefully bred for high production, and last year produced an average 29,000 pounds of milk per cow, far above the state average. “We couldn’t succeed if we didn’t put the cows and production first,” he says. “We want to ship as much milk per cow as possible—that’s our focus. We can’t afford an empty stall or a loafing cow.”
Finding success through diversification
In Pennsylvania, there is considerable variation in profitability among dairy farms of all sizes. Increasing herd sizes has been one strategy for increasing income. “Generally, if herd size remains constant, there is a need to diversify income stream to keep pace,” says Holden. “Much like other two-income households, some of our dairies have both dairy and non-dairy sources of income.”
The traditional model of a small dairy farm being an independent and self-sufficient operation, deriving income only from standard milk production, may well be passé. “Some farms may develop other enterprises that supplement dairy income, such as tours, ice cream stores, petting zoos, or gift shops.” Holden says. “They still run a viable dairy, but the tourist component supplies additional revenue. Urban encroachment keeps some farms from expanding even if they want to, but those farms on the edge of urban areas are ideally situated to take advantage of side businesses.”
Niche markets also hold promise for smaller farms. There is a growing demand for organic milk, which is produced using organically grown feed. Producing milk with enhanced levels of conjugated linoleic acid, a natural anticarcinogen, is another possibility dairy scientists are working on.
Breeding and selling cows is another potential sideline to the dairy business. On Houser’s farm, sales of breeding stock make up a significant portion of revenue. “I have developed a breeding program and a feeding program that most producers could do if they put forth the effort,” he says.
Specializing in profits
Specializing in a facet of dairy farming, rather than trying to do everything, also could help small farms survive. “I’m not sure the traditional model of a dairy farm can succeed in the future for smaller farms,” Hyde says. “Smaller farmers may have to specialize by buying their feed rather than growing it themselves, or having a custom grower raise their heifers, so they can concentrate on just milking cows.”
Specialization also can help farmers avoid the burden of purchasing all of the technology needed for the multitude of tasks on a traditional dairy farm. “Typically, small farms try to be self-sufficient—they grow all their crops and they buy all their own equipment, including a $150,000 milking parlor,” says Gary Sheppard, senior extension agent in Westmoreland County. “The problem is that the investment per cow on a small farm is much larger. Small farms can’t spread the investment over 500 or 1,000 cows the way the larger farms can.”
Many smaller dairy farmers carry uncomfortably large amounts of debt. “An industry benchmark is that a dairy farmer should carry no more debt than $3,500 per cow,” Sheppard says. “Another rule of thumb is debt should equal no more than 70 percent of assets. We have too many small farms with $250,000 to $300,000 in debt, and that debt just hangs there. They pay it down some, and then suddenly they have to borrow more to buy a piece of equipment like a $40,000 forage harvester.”
So far, few farmers have embraced the concept of specialization, but many small producers have shown interest. “There are a couple reasons why we haven’t seen much specialization yet,” Hyde says. “First, it’s a different way of doing things, and it can be hard to change. Second, there is a perceived risk, because farmers must give up a degree of control. Giving someone control over harvesting their crops, for example, may be uncomfortable for them. Nevertheless, in the near future many small dairy farms will not try to do everything, especially given the difficulty of finding labor.”
Innovative education for dairy producers
In response to the challenges Pennsylvania’s dairy farmers face, the college is developing new approaches to help them build management skills and find strategies that can help them thrive in theyears to come.
One of those approaches involves collaboration across county lines. Budget constraints make it impossible for Penn State Cooperative Extension to have experts on all facets of dairy farming in every county. So a group of 10 extension agents in the seven counties in extension’s Capital Region—Dauphin, Cumberland, Lebanon, Franklin, Adams, York, and Lancaster—formed a dairy team that enabled greater specialization among the agents and made their collective expertise available to farmers in the region.
The Capital Region Dairy Team focuses its educational efforts on three areas of farming: production management, financial management, and business management. The group offers handson, “on-farm” workshops on topics such as robotic milking, reproduction management, and transition cow procedures. Participants spend time in a classroom instructional setting before getting the opportunity to try out the techniques they learn on cows and equipment.
These days, of course, what dairy farmers need to learn goes beyond business management and dairy science. For instance, this past winter, the Capital Region Dairy Team offered a workshop on Spanish for dairy producers, in which instructors taught farm owners and managers basic Spanish to help them communicate better with their Spanish-speaking employees.
“Twenty-two producers signed up for those programs,” says Smith. “Now most of those farm operators are able to ask their Spanish-speaking employees about their families and better explain what they need to do on the farm. Dairy farms are struggling to find and keep good employees, and workshops like this help them overcome labor challenges.” Producers seeking to enhance their management skills also have a resource in the Dairy Alliance. Established by Penn State in 2000, the alliance brings together agribusinesses, industry organizations, and others to teach dairy operators to deal with issues such as human resource management, business management, information technology, and nutrient management.
“Our goal is to design proactive and cutting-edge programs for progressive dairy producers,” says Brad Hilty, Dairy Alliance information management specialist. “The programs we offer have been well attended, and the attendees have indicated that they are pleased with the level and quality of our programs. The feedback we’re receiving from the dairy industry is very positive.”
Through programs such as “Dairy Accounting and Benchmark Standardization,” “Busines$ense,” and “Dairy Information Analysis,” Dairy Alliance aims to help the entire industry gain a competitive advantage. “Being successful in today’s rapidly changing agricultural environment means learning new skills faster than your competitors,” says Tammy Perkins, Dairy Alliance program manager. “We’re working to improve access to the educational resources necessary for success in today’s dairy industry.”
A lifestyle question
Sometimes, despite efficient management, small farms still can’t stay in business. In fact, the most serious threats to small, family dairy farms may be more social than economic. “Some of our small farms have been extremely profitable for a long time,” Bailey says. “But it’s a lifestyle question and a business decision. What size dairy farm do they need to provide the lifestyle that they want?”
“On the smaller farms, the operator typically can’t afford a full-time hired hand, so the operator is tied to the farm and does nothing but work,” explains Sheppard. “Too often, small operators don’t have time for their families, or for anything but work.
“Unlike other small businesses, on a small dairy farm, the operator is the business,” he adds. “So often, personal problems such as marital issues ruin a farm. A small dairy farmer can make it financially in Pennsylvania, but he has to ask himself, ‘Is this the kind of life and career I want?’ That is the big threat I see to small, family dairy farms.”
The fact that many small dairy operators work harder and longer hours than most people is a deterrent to recruitment of young dairy farmers. “Many smaller dairy farmers aren’t pushing their kids to get involved in dairy farming because it is such long, hard work,” Sheppard observes. “We have a lot of 45- and 50-year-old producers facing a real dilemma. Do they go out and borrow a whole lot of money to modernize, or do they do nothing and have a completely obsolete dairy when they retire? They don’t want to borrow for their kids, because the reality is that their kids may not want to work on the farm.”
“But if we want the next generation to stay on the farms, we need to create a positive situation both in lifestyle and the income to support that lifestyle,” counters Bair. “Successful farms breed successful farms. We can and do have successful farms in Pennsylvania.”
When the children don’t stay in the dairy business, it can mean the end of a small farm. It is nearly impossible for a young person to acquire the equity to start a modern dairy farm from scratch, and larger dairy farms are usually formed when the owners of smaller farms decide to sell their assets to a larger operation. Making the decision to sell a family farm can be traumatic. “One of the greatest dairy business challenges comes when it’s time to sell the smaller farm’s real estate,” says dairy scientist Bill Heald.
“Often, the next generation of producers finds it very difficult to pay today’s prices when buying the dairy facilities, land, cattle, and machinery while living on the small farm income,” Heald says. “There just isn’t enough income to pay the new debt.
“During the career of some of today’s producers, land, cattle, tractors, and expenses have increased nearly tenfold while milk has only doubled or tripled in price. Often, the farmland is worth more for nonfarm purposes than for dairying and goes out of production. Large farms find this farm transfer debt easier to manage, because they sell more milk per cow and per farm with lower costs.”
“Both small and large dairy farms require succession plans,” Holden observes. “Many second- and third-generation dairy producers enter the business through a family dairy operation.”
Indeed, dairy farming in Pennsylvania continues to be almost exclusively a family tradition. “I don’t know a single dairy farm in our state that’s not operated by a family,” says Bair. “It’s a way of life. Some families have decided to invest to get bigger and increase profits so more family members can be involved in the operation.”
“If you have just 50 cows, you can’t bring a son or daughter into the operation,” says Bailey. “There isn’t enough revenue being generated—you’re not big enough. What I often see is that mom and dad have a successful family farm, and their son or daughter comes to Penn State to learn some good dairy science. The family then uses the equity it has built to borrow money, and expands the operation so there is room and revenue for the child in the operation.”
Faculty and staff referenced in this article are Ken Bailey, associate professor of agricultural economics; Alan Bair, director of dairy industry relations; Bill Heald, professor emeritus of dairy science; Brad Hilty, senior extension associate and information and management specialist for Dairy Alliance; Lisa Holden, associate professor of dairy and animal science; Jeff Hyde, associate professor of agricultural economics; Tammy Perkins, extension associate and program manager for Dairy Alliance; Gary Sheppard, senior extension agent in Westmoreland County; and Vinton Smith, extension agent in Adams County.