OLMIS

by Dallas Fridley
Published May-16-2012

Dairy Farm Production and Value Milk Prices Rising Again After Big Drop in Recession Dairy Product Manufacturing Americans Drinking Less Milk, But Consuming More Dairy Products Dairy Farming - Employment and Payroll Fewer But Larger Dairy Farms Conclusion

Dairy has a long tradition in Oregon. Many of Oregon's early pioneers were dairy farmers and manufacturers. Oregon dairy products are recognized worldwide for their high quality and employment is growing as a result. Dairy farmers and manufacturers provide jobs throughout the state. Dairy farms in Oregon were historically small, often employing a family and a few other individuals, but recent trends show dairy farms are getting bigger. Their primary product is milk, the official beverage of the state of Oregon. The milk is sold to dairy manufacturers who then sell the milk and use it to make cheese, butter, yogurt, ice cream, and other dairy products. Dairy manufacturers usually employ more people than dairy farms and are less numerous. Together, they comprise what we generally refer to as the dairy industry in Oregon.

The dairy industry, like other agricultural and manufacturing industries, has undergone significant changes since the late 19th century. Consolidation, technology, mechanization, and increased competition changed the face of dairy over the years. Today, dairy is still thriving thanks to strong demand for its distinct, high quality products.

Dairy prices helped to push Oregon's production value to a record $528 million in 2011 (Graph 1). 2009 was a much different year, with production falling slightly from 2008's output (-2%) but with prices plummeting by 18 percent. Lower dairy prices put the hurt on production values in 2009, with a loss of $97 million, or 19 percent. 2008's $56 million gain came on the heels of a record $119 million increase in 2007. Over 2007 and 2008, Oregon dairies churned out an incredible 54 percent increase in production value! Prices rebounded in 2010, and production values rose to $476 million - an increase of $70 million or 17.2 percent over 2009. Prices continued to rise in 2011 and despite a production cut of 3.9 percent, the value of production climbed by 10.9 percent to reach a record $528 million.

Dairy sales growth in 2010 and 2011 primarily came from Willamette Valley producers and those located on Oregon's Coast. The value of sales rose by nearly $69 million in the Willamette Valley, representing over 57 percent of Oregon's total growth. The Oregon Coast district increased its dairy sales by nearly $44 million over 2010 and 2011, chipping in close to 37 percent of the state's growth.

Looking back, the North Central district emerged as the growth engine for Oregon dairy sales in 2002 and by 2008, the fondue-pot runneth over with 27 percent of the state's sales - and that's whey more. Or put yet another whey, the North Central District churned out 42 percent of the growth in Oregon's dairy sales over 2006 to 2008. Looking at 2010 and 2011, the North Central district produced a sales gain of $6 million while the balance of state rose by $1.6 million.

Prices for Willamette Valley dairy products rose 23.9 percent in 2010, followed by a gain of 23.2 percent in 2011, bringing the two-year price increase to about 57 percent. Although the value of Willamette Valley dairy sales rose by about $69 million in two years, its production dropped slightly. Its outlook in 2009 waned on a 26 percent drop in prices, leading to a 28 percent loss in dairy sales.

The Coastal district also benefited from higher prices and likewise, its production actually dropped slightly since 2009. The North Central district remained relatively unchanged since 2008 with production and prices essentially flat.

Oregon's remaining dairy producing districts - which include Southwestern, Eastern, and South Central - churned out around 9 percent of Oregon's 2011 production. Production fell substantially in the south Central district in 2011 and Oregon's three small diary producing districts cut production by about 28 percent despite substantial price gains.

Most of the milk and dairy products produced in Oregon and the U.S. are consumed domestically, but supply and demand of dairy products globally can have an acute affect on U.S. prices. Preceding the 2008-09 recession, milk prices increased dramatically, along with many other commodity prices. Higher demand for dairy products - in particular, dry milk exports to China and Southeast Asia - pushed prices higher. Drought in Australia and New Zealand, other major milk exporters, also drove prices up. Between 2006 and 2008, the total export value of U.S. milk solids more than doubled, while total export volume increased by 22 percent. U.S. dairies increased milk production to try and keep up with the increased demand.

Meanwhile, the cost of production for dairy products was going up as well. Transportation costs increased with rising oil prices. Feed prices also increased. In particular, the price of corn increased sharply due to government mandated increases in the use of ethanol (made from corn) in gasoline, higher transportation costs, increased worldwide demand, and supply shortages. Consumers inevitably felt these increased production costs and supply shortages in the form of higher prices for dairy products. The Consumer Price Index (CPI) for all U.S. cities showed year-over-year price increases for milk topping out at 21 percent in September 2007, while cheese topped out a little later in February 2008 at 15 percent (Graph 3).

As the U.S. moved through the recession in 2008 and 2009, dairy prices fell. Demand for dairy products decreased rapidly and exports slowed. Suddenly, there was a supply and demand imbalance. Milk prices dropped to a point where it made more sense for some farmers to slaughter some of their cows than milk them. To help the struggling dairy industry through the recession, the U.S. Department of Agriculture announced in August 2009 a temporary increase in prices paid for dairy products through the Dairy Product Price Support Program. This program essentially sets a price floor for butter, cheddar cheese, and nonfat dry milk for dairy manufacturers in the U.S. If the price of these dairy goods drops to specified levels, manufacturers can sell their goods in bulk to the government. USDA also took other steps to help the dairy industry in the recession, including the reduction of dry milk inventories and reactivation of the Dairy Export Incentive Program, which helps U.S. dairy exporters meet prevailing world prices in markets where U.S. dairy products are not competitive due to subsidized dairy products from other countries.

Dairy prices began rebounding in mid-2010 as the U.S. started to emerge from the recession. These price increases have continued into the first three months of 2012, with over-the-year milk price increases topping out in September 2011 at 13.1, while cheese reached its peak in January 2012, at 10.3 percent. At its most recent peak, in August 2011, the price for milk received by Oregon dairy farmers was up to $24 per 100 pounds of milk, $3.30 higher than the peak price received by farmers before the recession, and a far cry from the $12 per 100 pounds farmers were receiving in the first half of 2009 (Graph 4).

Dairy product manufacturers add value to dairy farm production - processing raw milk into butter, cheese, ice cream, and condensed dairy products. Dairy manufacturers showed steady growth since 2000, rising from 1,884 jobs to 2,527 in 2011 (Graph 5). With a gain of over 640 jobs in 11 years, the industry's annual growth rate was around 3.1 percent.

The Willamette Valley dominated the state's dairy product manufacturing in 2011 with 1,589 jobs, or 63 percent of the total. Over the past 11 years, the Willamette Valley gained about 330 dairy manufacturing jobs - an increase of 26.2 percent (2.4% annually). The remaining districts, which comprise the balance of state, climbed to 938 jobs in 2011 - matching its total in 2009 but falling a few jobs shy of its 2010 peak. The balance of state outperformed the Willamette Valley over the long term, doubling its employment in 11 years. In 2008 the balance of state grew by nearly 90 jobs or around 11 percent, and then slowed to a gain of around 5 percent in 2009.

Dairy product manufacturing payroll grew to nearly $120 million in 2011, an increase of just 2.1 percent or $2.5 million and well short of its 6.7 percent annual average gain over 2000-2011. Payroll growth in 2010 also fell short of recent history, climbing by just 2.0 percent or $2.3 million. 2008 and 2009 were exceptional years for payroll growth, with increases of $9.9 million (+10.3%) and $9.5 million (+9.0%) respectively. Average pay in dairy manufacturing climbed to $47,757 in 2011. At that level, average pay in dairy manufacturing was nearly $4,400 higher than Oregon's all-industries average, at $43,091. Dairy product pay in Willamette Valley district reached $49,423 in 2009, considerably higher than the balance of state average, at $44,128.

Data from USDA show that per capita milk consumption in the United States steadily declined between 1945 and 2008. Per capita milk consumption was 22 gallons a year in 2008, about 50 percent less than the high of 45 gallons a year in 1945. Why the decline? Competition from other beverages, primarily carbonated soft drinks. The consumption trend lines for these two beverages over the past 50 years are complete opposites; Americans drink far less milk than they did two generations ago. Meanwhile, the per capita cheese consumption trend line in the U.S. has looked more like that of soft drinks than milk. Between 1970 and 2008, average annual cheese consumption tripled from 11 pounds per person to nearly 33 pounds per person (Graph 6). In 2008, milk and cheese manufacturing employed 80 percent of dairy manufacturing workers in Oregon, so the consumption trends of these two products are very important to Oregon's dairy industry.

Tillamook is synonymous with cheese. "Cheese represents approximately 80 percent of our products," says Scott Dean, Vice President of Human Resources for the Tillamook County Creamery Association. "Within that, our two pound medium cheddar loaf is by far the biggest selling item." Cheddar cheese consumption per capita increased 72 percent between 1970 and 2008, from a little less than six pounds per person to 10 pounds per person. Based on consumption trends, there's good reason to believe cheese producers, and the dairies that provide them with milk, will continue to see growth in the future.

Dairy farms set an employment record in 2011, with about 1,540 covered jobs (covered by Oregon's unemployment insurance system). 2007 was an exceptional year, with employment climbing by 126 jobs or 9.5 percent but since then dairy farms have only added around 90 jobs. Going back to 2000, dairy farm employment showed steady growth, climbing by 645 jobs, or about 72 percent, through 2011 (Graph 7).

From a regional perspective, the Willamette Valley dominated dairy employment back in 2000, with 533 jobs or nearly 60 percent of the state total. The Willamette Valley still dominated the employment outlook in 2011, with 672 jobs, although its share of the state total fell to about 44 percent. The Coastal district gained dairy employment in each of the past eleven years - slightly increasing its share of Oregon's employment to nearly 28 percent in 2011. The balance of state lost jobs in 2008 and 2009, but returned to growth in 2010 and 2011 with gains of 5.8 percent (23 jobs) and 4.8 percent (20 jobs) respectively. Its growth since 2000 was substantial, with just 148 jobs in 2000, the balance of state grew to 438 jobs in 2011, for a 28 percent share of Oregon's dairy employment.

Along with new jobs, dairy payrolls grew by nearly $10.4 million from 2006 to 2011 (+28%). With payrolls reaching $46.9 million, average pay climbed to $30,422, a five-year increase of 10.5 percent. Dairy industry pay in the Willamette Valley district, at $29,948, fell just below Oregon's average. The Costal district paid an average of $28,235 in 2011, while the balance of state finished at the top, with an average of $33,299.

Historically in the U.S., small, family-owned dairy farms with less than 100 cattle produced the majority of milk. Since the 1970s, large farms with over 1,000 cattle have become much more commonplace, displacing or purchasing smaller farms. Large farms are able to produce milk at a lower cost than smaller farms. As a result, productivity in the industry has risen, putting downward pressure on dairy prices. This is great for consumers, but difficult for small farms that face tough competition from larger farms.

The trend toward larger farms intensified in the 1990s. According to the USDA, in 1992, about half of all dairy cows were on the approximately 135,000 U.S. dairy farms with fewer than 100 cows. By 2006, there were about 58,000 dairy farms left with fewer than 100 cows, accounting for less than 25 percent of all dairy cows.

Oregon dairy farms are also getting larger. The average size of an Oregon dairy mirrored that of the U.S. average between 1974 and 2002. In 1974, the average number of milk cows per farm in Oregon was 21, and there were about 88,000 total cows and over 4,200 farms. By 2002, the average dairy reached 103 cows. The U.S. average in 2002 was similar at 99 cows per farm. But things changed significantly in Oregon between 2002 and 2007. In only five years, the number of dairy farms in Oregon was cut nearly in half, from 1,133 in 2002 to 596 in 2007. Meanwhile, the number of milk cows increased slightly to 116,788, which gave Oregon an average of 196 cows per farm. The average size of an Oregon dairy nearly doubled in five years. Thus, the average dairy farm in Oregon is now significantly larger than the national average, which was 133 cows per farm in 2007. Between 2002 and 2007, Oregon lost an average of 9 dairy farms a month.

One dairy community that has tried to maintain its identity as a small farm community is Tillamook. Even so, there are fewer farms today than there used to be. Richard Obrist, Tillamook dairy farmer and member of the Oregon Dairy Farmers' Association, said the Tillamook County Creamery Association (TCCA) used to have over 500 members in the 1950s. "In the past, family farms were passed down from generation to generation," said Obrist. "If there wasn't a family member to take on the farm, many of those farmers retired when they could no longer operate the farm."

Obrist said the cooperative structure of the TCCA has been crucial to the survival and success of small farms in Tillamook. "If it wasn't in place, the farmer would not only have to run the farm, they'd be responsible for marketing and selling the product," states Obrist. "The co-op also does a great job of working with the farmers to help them overcome issues that affect the quality of their milk."

In Boardman, the face of dairy looks a little different. Boardman is located in Morrow County along the Columbia River. In 2001, the TCCA built a new cheese factory in Boardman. Tillamook area farmers couldn't keep up with the TCCA's demand for milk, so another source was critical to the expansion of the creamery. Unlike the home factory in Tillamook, the Boardman plant does not depend on lots of small farms to supply it milk. It depends on larger ones like Threemile Canyon Farms. Threemile Canyon Farms is a mega dairy with 93,000 acres of land in ownership and 16,000 dairy cows. The cows produce one million pounds - or about 116,000 gallons - of milk each day. This is one example of the trend toward larger farms in the dairy industry.

Despite tough times, the dairy industry in Oregon is moving forward. Milk prices are on the rise again. The economy is improving and demand is growing. Dairy manufacturing continues to show steady employment growth, as does dairy farm employment, due in part to the change from smaller farms to larger ones. While there aren't as many dairy farmers as there used to be, those who persist continue to produce high quality milk. Many are making the transition to organic milk as well. In fact, there were 60 certified organic dairies in Oregon in 2008, up from 44 in 2006. In 2007, organic milk cows numbered 14,390, about 12 percent of all milk cows in Oregon.

Dairy manufacturers continue to produce high quality dairy products, from the award winning bleu cheeses of Rogue Creamery to the fresh, delicious milk at your local grocery store. They also provide good paying jobs throughout the state, in urban and rural areas. "In general, these are good jobs - family wage jobs - with good benefits," says Scott Dean.