Posted: April 24, 2020

For Pennsylvania's dairy industry to pull through, it must figure out a way to lower the cost of production and improve, enhance and expand local and regional food networks.IMAGE: PENN STATE

For Pennsylvania's dairy industry to pull through, it must figure out a way to lower the cost of production and improve, enhance and expand local and regional food networks.IMAGE: PENN STATE

By Jeff Mulholloem

April 22, 2020

UNIVERSITY PARK, Pa. - The COVID-19 outbreak is hitting Pennsylvania's beleaguered dairy industry hard, and sadly, there is a segment that will not be able to sustain more economic body blows. However, the long-term outlook for dairy appears to be stable in the state, according to a Penn State Extension expert.

But don't expect it to look the same as it has.

The novel coronavirus crisis will complete an "irrevocable" change in Pennsylvania's dairy industry that is, understandably, seen as negative by people wishing that things could return to the way they were, explained Dave Swartz, assistant director for animal systems programs with Penn State Extension.

"The pain in the ag sector is incredible, and emotions are running high with producers and their families, who are really stressed," he said. "There's going to be some restructuring of the industry, but the long-term outlook is strong because of Pennsylvania's geographic position."

Not long ago, Pennsylvania was one of the top milk-producing states in the country. But hundreds of dairy farms in Pennsylvania were not able to maintain their competitiveness and disappeared from the state's dairy industry over the past 18 months.

"Dairy farms across the nation look much different from our farms in Pennsylvania," said Swartz. "Most of our nation's milk comes from herds of more than 500 cows. In Pennsylvania, our average herd size is roughly 85 cows. Over the past decade, the dairy industry in Wisconsin, Michigan and Texas have consolidated into larger herds or have had large increases in milk production."

Today, Pennsylvania ranks seventh in milk production, producing just a fourth of the milk generated by leading state California.

Before the COVID-19 outbreak, milk demand in the U.S. had been growing steadily for years. Demand for dairy products such as cheese, butter, sour cream, yogurt and ice cream has been increasing, even as fluid milk consumption has plunged. However, American dairy farmers have been pushing more milk on the market than needed. As a result, low milk prices in recent years have put many Pennsylvania dairy farms out of business.

The COVID-19 outbreak is expected to eliminate even more, said Swartz, creating a perfect storm for Pennsylvania's dairy industry.

"Around 2017, American consumers started to eat out more," he said. "More dollars were spent in restaurants and for take-out food than were spent in grocery stores. The restaurant trade uses a high proportion of dairy products in their menu selections, so the dairy industry greatly benefitted from this trend."

But in the face of COVID-19, restaurants were forced to close, and demand for dairy products crashed. And when schools were shuttered, the leading driver of fluid milk sales, students, also disappeared. These sudden supply chain disruptions have been tragic - across the country, hundreds of tanker trucks full of milk have been dumped. The heart-breaking spectacle continues today, often caught in news photos and videos, because cows keep making milk.

There is no telling how long the current situation will go on. Still, it's certain many dairy operations with uncompetitive cost-of-production levels in Pennsylvania and beyond will not endure, Swartz pointed out. However, the long-term outlook for dairy production in the Keystone State seems hopeful.

"There are some general things that exist in the marketplace that are very positive for Pennsylvania agriculture," he said. "We are in as good a position geographically as any state's ag industry. Our agriculture is located near huge populations. We have many neighbors close by who need to eat."

For Pennsylvania's dairy industry to pull through, it must figure out a way to lower the cost of production and improve, enhance and expand local and regional food networks, Swartz contended. He suggests that the COVID-19 crisis has advanced that initiative.

"As people start to become less secure about whether there will be food in grocery stores, they are searching for alternative places to get food," he said. "And Pennsylvania producers are in a great position to fulfill that need."

However, to survive financially, dairy producers must change the way they do business, Swartz maintains. In the future, the state is likely to have a bifurcated - or two-track - look to its dairy industry.

"We will have a small number of really large herds that are extremely efficient in producing tanker loads of milk every day, and we will have more smaller farms and dairies that are adept in connecting with consumers and producing more regional- and local-type products," he said. "It's a real positive that we're located near the East Coast, where we can put our products in front of millions of consumers."

To help all dairies prosper, Penn State Extension offers a range of programs. It helps farmers with business management, calculating costs of production, looking for ways to be more efficient and productive. Extension also helps dairy farmers enroll in risk-management programs, which protect them from the severe variation in milk prices that can occur in the marketplace.

Extension assists small-scale dairy farmers interested in arranging further processing of products to capture more consumer dollars, and it helps farmers with enterprise analysis, calculating opportunity costs to determine how they can use their resources to generate more net income.

New initiatives such as feeding dairy steers for beef production, putting up a broiler house for poultry production, establishing an on-farm market and agritourism ventures are analyzed.

In the wake of the COVID-19 outbreak, a new normal will emerge across our country, and many things - the Pennsylvania dairy industry included - must adapt, Swartz said. "Going forward, a 50-cow dairy simply selling milk at the wholesale price is not going to generate the cash necessary to bring a sufficient return to the owner, unless they are, in some manner, selling directly to consumers."