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State of the Industry

Pennsylvania dairy industry working toward innovations

Editor’s note: As part of our monthly “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 state —Pennsylvania.

By Rena Archwamety

MADISON, Wis. — Neighbors peering over the fence into the backyard of Pennsylvania’s dairy industry might have the impression that this is a state that has it all. Pennsylvania ranks fifth in the nation for milk production, having produced nearly 10.7 billion pounds of milk in 2007. With 8,400 operations, it comes in second only to Wisconsin in the number of dairy farms. And the state sits on a prime location, with 40 percent of the nation’s population living within 400 miles of Pennsylvania’s milk producers.

“Just the sheer numbers give a pretty good lay of the land,” says John Frey, executive director of Pennsylvania’s Center for Dairy Excellence.

“We are pretty critical to meeting the demand for fluid milk in the East Coast region,” Frey adds. “We have almost half of the population here within driving distance, and it’s a tremendous opportunity to provide for them. Far be it from us to not take advantage of that. We’re just sitting in an ideal location.”

The area provides a steady demand for fluid milk in particular, and half of the milk produced in Pennsylvania is exported outside the state. The major dairy processors in the state include Land O’Lakes’ butter, nonfat dry milk and condensed milk products plant in Carlisle, Pa., as well as cheese and dairy plants belonging to the Dairylea, Maryland-Virginia and Dairy Farmers of America cooperatives. The state produced 393.9 million pounds of cheese last year, mostly Mozzarella, but its fluid milk market is strongest.

“We’re close to the market, and that is reflective in the Class I utilization in the Northeast,” says Allen Bair director of dairy industry relations, Pennsylvania State University. “The Northeast, I think, is fortunate to have a stronger milk price than other areas. Our dairymen have had a good year based on milk prices last year.”

Pennsylvania’s dairy industry has a unique pricing structure determined by the state’s Milk Marketing Board that sets minimum prices for farm, wholesale and retail in six milk regions of the state. Its goal is to keep prices stable for both producers and consumers.

The board holds hearings approximately every six months to determine the rate of the over order premium based on production costs that include current grain, fertilizer and diesel prices along with expected milk prices.

“Sometimes milk dealers would like premium to be lower, and sometimes farmers and cooperatives want to be higher,” says Tim Moyer, chief of support services for the Milk Marketing Board. “But generally they are accepting of board’s decision.”

The Milk Marketing Board has been an independent agency in Pennsylvania since 1968, and its predecessor, the Milk Control Commission, had established minimum prices and enforced standards for producers since the 1930s.

While Pennsylvania’s large farms tend to be profitable, nearly 85 percent of its dairies have less than 100 cows, and many of those small farms are struggling.

“Research lately indicates only a minority of farms in the state have a positive profitability, and only a very small percent would be considered highly profitable,” says Brad Hilty, business information management specialist with the Dairy Alliance team at Penn State.

Hilty says while there always will be some small farms that will find a way to be profitable, he projects that dairy farm numbers in the state will decline.

“The business model of own-all, do-all might be a thing of the past,” he says. “Studies show that model does not work anymore. It doesn’t allow farms to generate the profit to have long-term viability.”

Many of the state’s small farms that are facing a need to grow and modernize are owned by farmers in communities that value tradition.

The state’s large number of traditional Amish and Mennonite families, who tend to have smaller farms, helps add to the large number of small farms in Pennsylvania. Hilty says while there still is a lot of opportunities for these farms, the owners will need to look at modernizing and expanding.

“Even some of the farms in those communities will have to re-think how they do business down the road,” Hilty says. “I know some younger producers I’ve talked with over the years that would like to do things differently. We may see a shift in that in the long term.”

“An important part of our industry is the small farms that are part of the plain sect community — the Amish and Mennonites. They are embracing technology, and it provides the lifestyle they want,” Bair says.

Alfred Wanner, who owns and runs a dairy farm with his two sons in Lancaster County, Pa., has paid close attention over the years to the changes and adjustments needed to stay afloat in the dairy business.

“The first thing is to keep a real sharp pencil. You have to look at what you need to keep business profitable and to grow,” Wanner says. “If you want to expand, you’re going to have to pay for it.”

Wanner has been dairying full-time since 1965, when he graduated from high school and joined his father on the farm. When he started, the farm had 24 cows. Today he and his sons are milking 600. Each year he pays as much in taxes as his father paid to purchase the entire farm.

To balance rising taxes, land and overhead costs, Wanner has found ways to reduce costs and improve production. He grows as much of his own feed, mostly corn, as he possibly can, and had enough from his 2007 crop not to have to buy any extra corn for a year. He also built a methane digester that started running in 2007 and provides electricity for the farm and bedding for the cows.

“Right now there is an initial cost, but long-term benefits should save money and improve our bottom line,” Wanner says.

He also has more than doubled his average production per cow since he started in 1965, from 10,500 pounds to 26,500 pounds of milk per year. And while some large companies he used to provide milk to no longer accept milk from cows treated with rbST, he continues to us the artificial hormone to keep up production levels.

“One of the big things is that we’re close to markets. I can deliver milk to Philadelphia, Ohio, Baltimore, Washington D.C. and Virginia,” he says. “I continue to use rbST, a technology that allows me to get more milk. I’m using it as well as I’m able to.”

The state’s dairy leaders are working to bring long-term viability and profitability to farms of all sizes in the dairy industry through support organizations and targeted programs for dairy farmers.

In 2003, in an effort to reverse a series of declining dairy production numbers, Pennsylvania Gov. Edward G. Rendell helped to create the Pennsylvania Dairy Task Force, which immediately established the Center for Dairy Excellence.

“Our goal is to coordinate all our resources that exist within the industry, and make sure we are focused on profitability and any new programming needs that exist to grow profitability,” Frey says.

The Center for Dairy Excellence provides dairy business planning templates and teams that focus on dairy profit, dairy targets and dairy succession. It is working with the state on a tax credit program called “Dairy MAX (modernization and expansion).” In November, it is hosting the Pennsylvania Dairy Profitability Forum in Harrisburg, Pa., which will focus on technology, modernization and profitability. It also has built an elementary educational program called Discover Dairy, and it collaborated with other dairy organizations and universities to build the Dairy Animal Care and Quality Assurance program to give consumers greater confidence in the state’s dairy products.

Penn State’s Dairy Alliance also provides programs to help producers to develop skills to manage larger dairies. This winter the Dairy Alliance is holding a program to help producers evaluate current business models and the changes needed to improve profit and ensure long-term viability.

Programs help those who seek the assistance, but Hilty says in order to see more growth in Pennsylvania’s dairy industry, producers need to believe that change is necessary.

“I think our state has a lot of resources,” Hilty says. “But it’s up to individual producers to do what they’re going to need to do to make sure the industry doesn’t decline.”

He adds that the Dairy Alliance constantly talks to producers about the importance of increasing production to balance increasing overhead costs.

“Many producers have told me they don’t want to milk more than 60 to 70 cows,” he says. “They don’t realize the amount of money it takes to live on today.”

Bair says there is room for more growth and success in Pennsylvania’s dairy industry, as demonstrated by a number of the state’s progressive dairy farmers.

“The way your father and grandfather looked at dairying might not work today, but we see very successful dairymen in Pennsylvania. We know we can do it,” Bair says. “We have not only a core group, but a large group of progressive dairymen who have been successful over the years — that’s why we still have 8,400 of them.”

Wanner says despite some challenging years, particularly in the early 2000s, he remains hopeful that the state’s industry will stay strong.

“I view the dairy industry with cautious optimism,” he says. “When there’s a problem, I like to say, ‘OK, we have a problem, what can we do to make it right and change things?’ I look at things with a positive outlook, and would like to see us keep it viable.”

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