The Dairy Decline

Old Home’s plant closing reflects an industry in steady decline. According to the Minnesota Department of Agriculture, the state had 129 dairy plants a decade ago. By last count this year, only 96 remained. Besides Old Home, plants that have closed over the past 10 years include Oak Grove in Norwood Young America, Meyer Brothers in Wayzata, and Brown’s Velvet in Annandale. Arden Hills–based Land O’Lakes, the third-largest dairy co-op in the country and the largest dairy-products company in the state, has only one plant that receives milk in Minnesota—a cheese-making facility in Melrose, which it owns with Dairy Farmers of America, a co-op based in Kansas City.

Those remaining plants’ sources of supply are also disappearing. U.S. Department of Agriculture reports show that the number of dairy farms in Minnesota has fallen from 10,622 in 1996 to 5,413 at the end of 2005. Total milk production has dropped 13 percent in the state during that time, even while national output has been rising. Dairy farmers are trying to hold on, but the increasing “urbanization” of the state, along with the lower cost of milk production in other states, is making it difficult for them to do so.

Today, dairy ranks fourth in terms of employment among Minnesota’s manufacturing industries. Dairy production, processing, and marketing accounts for 44,529 jobs in the state. But that’s compared to 53,696 five years ago. At the same time, consumers haven’t been expressing much concern about the state’s dairy decline, even though prices for milk have increased a bit. There is a general consensus among industry observers that the dairy industry—and the jobs it provides—will continue to decline.

What’s more, it’s probably too late to stop it.

Got Milk? Where?

The cost of milk is a significant factor when we compare ourselves with the West,” says Don Ault, dairy economist and vice president with commodity-market research and consulting firm Informa Economics in New Brighton. “For the last five years, Minnesota’s farm milk prices have averaged 25 cents per hundredweight above the national average and $1.50 above California prices.”

Minnesota dairy farms, just like the state’s plants, face heavy competition from other states, particularly in the West, where both plants and farms are newer and larger. These facilities have been able to incorporate up-to-date technology that results in lower operating costs and larger herds, which in turn allows for better economies of scale.

The average size of a dairy herd in California is 750 cows. In Minnesota, the average herd size is 77. California has 1,100 herds with 500 or more cows, compared to Minnesota’s 60. And 5,000-cow farms are common in California; Minnesota has two. “California producers can spread their fixed costs over more units,” Ault says.