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State of the Industry

Dairy industries in Kentucky, Tennessee making transition

Editor’s note: As part of our “State of the Industry” series we take a look at the cheese and dairy industry across the United States. Each month we examine a different state or region, looking at key facts and evaluating areas of growth, challenges and recent innovations. This month we are pleased to introduce our latest states — Kentucky and Tennessee.

By Rena Archwamety

MADISON, Wis. — The mountainous terrain of the Appalachians and the hot, humid summers of the Southeastern region of the United States may not provide the typical landscape for dairying. Kentucky and Tennessee might be better-known for their champion racehorses, Smokey Mountains and acres of tobacco farms, but dairy producers and processors have carved out a home in these states as well.

“The terrain is very suitable for dairying,” says Donna Amaral-Phillips, professor of dairy science, University of Kentucky. “People think of the Appalachians, but that’s not where the dairy farms are. They’re more in the rolling, central part of Kentucky. A lot of cows are located in the central part of the state.”

Terry Rowlett, a dairy farmer in north central Kentucky and president of the American Dairy Association of Kentucky, part of the Southeast United Dairy Industry Association, says Kentucky holds plenty of advantages for dairy farms.

“Kentucky is at a crossroads here,” Rowlett says. “Here in Kentucky, we have a lot of land, it’s rolling, and it’s not totally suitable for massive row crop production. We have a lot of grass for our cows to graze upon, cutting our costs. We’re located in the north part of the Southern deficit market ... so there is readily-available processing for Class I milk.”

Kentucky’s largest dairy-producing counties include Barren and Adair in the south central region of the state. Christian County in southwestern Kentucky, however, has the most number of dairy farms due to a large community of Amish and Mennonite farmers with small dairy herds in that part of the state. The largest dairy herd in the state, with approximately 1,400 cows, also is located in this part of the state.

In Tennessee, the largest concentration of dairy farms is in the traditionally agriculture-rich southeastern Sweetwater Valley area of the state, with some in the central part and fewer in the west. Tennessee dairy farms typically are small, family-owned operations, according to the Tennessee Department of Agriculture. The number of dairy farms in Tennessee has decreased by more than half over the last decade to a little more than 500 currently.

Milton Beard, who owns and operates a 460-cow dairy in south central Tennessee, says the state’s climate and land can present challenges for dairy farmers.

“Weather conditions in Tennessee are not very favorable. We have the hot weather of the deep South in the summer, and the cold that the North has in the winter,” he says.

Temperatures range from around 90 degrees in the summer to below freezing in the winter. And while the winters aren’t always severe, Beard says dairy farmers always must be prepared.

“There usually are one to two weeks per year when it’s extremely cold, and if you’re not prepared for it, it’s a disaster,” he says.

The rivers and valleys of the region provide a plentiful water supply and fertile land for growing feed, but they also present environmental hurdles for producers.

“Environmental issues are a constant challenge,” Beard says. “Especially in Tennessee, with the terrain and soil we have, it makes it harder to dispose of large volumes of waste.”

Maury Cox, executive director of the Kentucky Dairy Development Council, says with Mammoth Cave National Park in the center of the state, Kentucky producers also have to be cognisant of water quality issues all the time. But he adds that the natural waterways are a great asset to the dairy industry.

“We have tremendous amounts of water,” Cox says. “We have excellent infrastructure as far as roads, and also excellent infrastructure as far as water facilities.”

Many dairy farms in the South used to also grow tobacco, and some, but not as many, still do farm both commodities.

“Tobacco used to be king here,” Rowlett says. “The dairy farmers milked a few cows to put groceries on the table, but tobacco paid for the capital assets purchased,” he says.

Cox says the state’s tobacco history has affected the size of the state’s dairy farms and how they can expand.

“One of the things about Kentucky that is significantly different than states like Kansas and Indiana is the size of its farms,” Cox says. “Typically they are 160 acres or less because they are set up on a tobacco base. We no longer have that in a federal program, but the land bases have stayed the same. In order to have a 3,000-cow dairy we would have to put several plots together. So we have different challenges than in other states that we are addressing.”

• Stop the bleeding

Like many states, Kentucky and Tennessee both are struggling with a declining number of dairy farms and cattle as farmers reach retirement age or farms close under the pressures of low prices and rising overhead costs.

“I think it’s definitely on a downward spiral fast if things don’t change,” Beard says of Tennessee’s dairy industry. “There are very few new dairies starting up, and the ones that do don’t last very long. You don’t see the big dairies coming into Tennessee like you do in other parts of the country. There are a lot of small, 100-cow or 60-cow dairies.”

Along with dairies, Beard says much of the state’s infrastructure for dairies is dwindling.

“There used to be infrastructure in the past, four to five equipment dealers, now there’s one or two and they’re quite a ways away,” he says. “We have to deal with people farther and farther away all the time.”

Cox says while Kentucky has lost many of its dairies, others have come in and existing dairies have worked to increase profits.

“What we are trying to do is at least stop the bleeding, slow down the loss and make it more profitable to dairy here in Kentucky,” Cox says, adding that several new dairies have started up in the state over the last year.

Amaral-Phillips says many Kentucky dairy farmers have added additional cows help cash flow, and while an addition of 10 or so cows may not be classified as an expansion, this has helped expand or at least stabilize the industry as a whole.

“I think we will see cow numbers stabilize,” she says. “We have some older farmers that will want to retire, but I see cow numbers remaining stable.”

• Supplying a deficit region

While dairy farms are growing fewer and farther between in Kentucky and Tennessee, processors remain plentiful in these two states. Kentucky has 13 processors, including two Dean Foods plants, a Kroger plant and two National Dairy Holdings plants (now owned by Lala). Major cheese processors in the state include Bluegrass Dairy & Food and Bel Brands.

Tennessee is home to 20 processors, including a large Yoplait yogurt processing facility, and the state produced 3.6 billion pounds of yogurt in 2008, according to USDA’s National Agricultural Statistics Service (NASS). Other large processing facilities include Purity Dairy, Mayfield Dairy, Country Delite and Heritage Farms. Three processors closed this past year, including Turner Dairy bottling and ice cream facilities and an institutional dairy at Fort Pillow, but three smaller processors, including two goat milk cheese plants, opened within the last six months.

“We do have in our area several options for markets for our milk,” Beard says. “I have the option to sell to one of four different co-ops, or two to three independent markets that are available.”

Cox says since the entire Southeast is a milk deficit region, much of the milk for Kentucky processors must be shipped in from other states like Indiana and Michigan.

In addition to supplying in-state plants, Amaral-Phillips says Kentucky producers also have been able to supply some of the deficit to other states in the region.

“We are at the northern edge of the Southeast, with that big market for milk,” she says. “Kentucky is able to supply some of that deficit in the Southeast to go into Florida and other southern regions.”

• Transition and enhancement

The dairy industries in both Kentucky and Tennessee have programs in place to help increase milk quality and production as well as help dairy farmers with other improvements and marketing.

The Southeast United Dairy Industry Association helps promote dairy foods throughout Southeast states including Kentucky and Tennessee. Some of its activities include a community outreach program to help dairy producers build relationships with their communities and promote a positive image of the dairy industry, and a partnership with the National Football League, including the Tennessee Titans, to help promote milk and fitness in schools.

The Kentucky Dairy Development Council has the mission to educate, support and represent Kentucky dairy producers and foster an environment of growth for the Kentucky dairy industry.

“Probably one of the largest issues is that the Kentucky dairy producer sector is in transition,” Cox says. “Production level per cow is in the lower parts of the nation at a little over 14,000 pounds, but we have several producers that are well above the national average. We’re working to increase production per cow through education and working on cow comfort.”

Cox says the council also is focusing on milk quality as well as marketing issues and making it more profitable to dairy in Kentucky.

Earlier this year the council worked with the state to form the Kentucky Milk Commission, a forum within the state’s department of agriculture that Cox says is designed to bring producers, processors, retailers, marketing cooperatives and consumers together to discuss ways to address challenges to benefit everyone in the dairy industry. The commission was signed into law March 24, and the first meeting of the commission will be held in September.

Beard says a group of Tennessee dairy farmers, with the help of the University of Tennessee Extension and the state’s Farm Bureau earlier this year formed the Tennessee Dairy Producers Association. While this group still is in organizational stages, Beard says it could be a means to promote legislation and other efforts to help the state’s dairy industry.

Like Kentucky, Tennessee also is undergoing a major transition, according to the Tennessee Department of Agriculture, as competition from larger, out-of-state dairies increases. To help the Tennessee dairy industry and other agricultural sectors in the state make the necessary long-term investments to stay competitive, the ag department in 2005 launched the Tennessee Agricultural Enhancement Program (TAEP). This cost-share program, which provides 35 to 50 percent of the cost to improve management and marketing, is designed to encourage investment in equipment and technology as well as in education. Through a “Producer Diversification” segment of TAEP, producers can apply for assistance to develop and provide value-added products such as organic or specialty items.

“We try to put forward abilities for producers to purchase some capital improvements that will help improve milk quality and efficiency in operations,” says Jimmy Hopper, director of regulatory services, Tennessee Department of Agriculture. “The intent is to help encourage farmers to invest back in ag and bring in more profits.”

Producers who attend educational programming are eligible for higher cost shares. For example, dairy producers who attended a three-day Tennessee Quality Milk Initiative course from the University of Tennessee Extension were eligible for the increased 50 percent cost share under TAEP during the 2007-2008 fiscal year.

“It’s been real successful in the dairy industry,” Hopper says, adding that approximately two-thirds of the state’s producers attended the milk quality course. “Several producers said it was worth what they had gained just from the educational information.”

In Kentucky, Cox says in addition to helping to educate those in the dairy industry and improve production levels, he would like the state to help milk producers to expand and provide opportunities for those who might want to come into Kentucky.

“We certainly have a great market here. We know we can produce milk. The top herd is producing 27,000-29,000 pounds of milk,” he says.

“We still have some that are expanding and continuing to grow,” he adds. “If the financial market opens up some and brings back stability, we’re going to see some dairies of large size coming here.”

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