Thursday, April 06, 2017

Got (too much) Milk? As Wisconsin Dairy Gets Bigger, Progress Comes With a Price

When this week's news hit that Grassland Dairy in north-central Wisconsin was ending milk contracts with between 65 to 75 Wisconsin dairy farmers, my first thought was: this is the beginning of the squeeze on medium-sized, Wisconsin-owned processing plants. Sure enough, news soon leaked out that nearby Nasonville Dairy in Marshfield, had also sent letters to about 20 area farmers on March 17, informing them their dairies would be dropped from pick-up because that cheese factory had recently lost a cheese contract and no longer needed their milk.

Keep in mind, these are not small factories. They are good-sized facilities employing hundreds of people. Grassland processes more than 3 million pounds of butter, cream cheese and milk powder a year, while Nasonville makes more 2 million pounds of Cheddar, Monterey Jack, Asiago, Brick, Muenster, Hispanic styles, Parmesan, Romano and Provolone at two different state-of-the-art facilities.

While Grassland's predicament can be blamed on Canada (our neighbor to the north just implemented a new milk pricing structure, making it more cost efficient for Canadian processors to purchase milk from their own dairy farmers), the action taken by Nasonville, and I fear more Wisconsin-owned factories in the immediate future, is troubling.

To put it simply, big Wisconsin cheese factories that are not locally owned (more on this shortly) can and do purchase out-of-state milk cheaper by the semi-tanker than they can from the 10 small local dairy farms down the road. With a glut of milk in the upper Midwest, it's a buyer's market, and many big factories take advantage of cost differences by bringing in cheap milk from afar.

It wasn't always like this. In the past 15 years, dozens of family-owned cheese factories that had decades of relationships with multi-generational local dairy farms and who forged long-term contracts with farmers who were essentially their neighbors, have either merged or been bought out by big companies. And most of those companies aren't American. Today, of 127 cheese plants in Wisconsin, more than 15 of the biggest are owned by foreign companies.

For example: 
  • Saputo Inc., a Montreal-based Canadian dairy company that is the tenth largest dairy processor in the world, owns and runs some of the state's biggest cheese plants, whey processing plants and dairy processing facilities in Green Bay, Fond du Lac, Waupun, Lena, Black Creek, Reedsburg and Almena. 
  • Agropur, a large agricultural cooperative headquartered in Quebec, owns four ingredient-processing and cheese plants in Luxemburg, Weyauwega, LaCrosse and Appleton. 
  • Arla Foods, an international cooperative based in Denmark, and the largest producer of dairy products in Scandinavia, owns a huge cheese plant in Kaukauna.
  • Emmi, a Swiss milk processor and dairy products company listed on the SWX Swiss Exchange, owns Roth Cheese in Monroe and Platteville. 
  • Last, but, oh my, certainly not least, is Lactalis, a multi-national dairy products corporation based in France. Lactalis is the largest dairy products group in the world. It owns two large cheese plants in Belmont and Merrill and cranks out more President Brie than one can imagine.

What does this mean for Wisconsin dairy farmers?

It means the local cheesemaker up the road they've been selling milk to for the past 20 years - and the same factory that their father probably sold to before that - is now owned by a stranger who values the company's stock price over a handshake deal with a local farmer trying to earn enough money to send his kids to college.

It means that large dairy farmers who have spent the past decade spending money to get bigger rather than getting out are now worrying whether they will have a milk contract in 30 days.

It means small dairy farmers trying to break into the business are trying to find a buyer for their milk. Take for example, T.J. Grady, who will turn 21 in May. T.J's a good-hearted kid who I've watched grow up into a hard-working man and build a small dairy near Oregon, Wisconsin with his father. T.J. has been slowly and steadily building his herd of 25 cows with a dream of farming full-time. In 2015 and 2016, T.J. took classes at UW-Madison, earning a dairy farm management certificate, a pasture based dairy certificate, and completed courses needed for a certificate from the Wisconsin School for Beginning Dairy and Livestock Farmers.

A few months ago, a neighbor who was milking 50 cows sold out due to a combination of health and financial reasons. "I was doing some research about getting an FSA loan and buying his herd, and renting their facilities. But I don't think I would be able to find anyone to pick up extra milk, with the over supply in the market right now," T.J. says.

T.J. took the news of nearly 75 farmers losing their milk contracts with Grassland especially hard, as most were small dairy farmers like him. "This is very disheartening to me, as someone who studied farm management and hopes to operate my own dairy someday. I can't imagine how terrifying it would be to get a letter in the mail saying that your milk will no longer be picked up. I had a professor in school that said, 'In Wisconsin, it used to be that if you milked 10 or 1,000 cows, there would be a market for your milk.' Unfortunately with the ups and downs of today's commodity market and the consolidation of dairy farms, coops, and milk processors, that doesn't seem to be the case any longer."

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