Farms not cashing in on yogurt boom
Incentive lacking to expand production to meet demand
CAPITAL REGION The demand for milk by yogurt manufacturers in New York is rising, but Cobleskill dairy farmer John Radliff sees little reason to buy more cows to help meet it.
For Radliff, who owns School Hill Farm, investing a lot of money in an expensive farm expansion is too great a risk. Milk prices are volatile and can swing wildly, and the consumption of beverage milk is in decline.
“What matters is that I get on firm financial footing and pay down debt, not take on any more debt,” he said. “Nobody has shown me that at this time [expanding] is worth the risk.”
Nobody disputes the exploding popularity of Greek yogurt is a good thing for the state.
“It’s provided a substantial market for dairy markets to send their milk,” said Steve Ammerman, spokesman for the New York Farm Bureau. “We’re the leading yogurt manufacturer. It’s better to have that happen here than anywhere else, because the first thing any dairy farmer needs is a place to sell their milk.”
But dairy farmers, who would seem to be the prime beneficiaries of a trend that increases demand for their product, are seeing little positive impact.
“This is the biggest snow job that’s been passed on to the farmers and people of New York,” Radliff said.
Yet even a skeptic such as Radliff can see the trend is good for the state, even if it’s doing little for him.
“It’s positive,” he said. “It’s another milk market to go to. But the government is passing it off as a panacea for dairy farmers, and it is not. It’s an opportunity to sell milk, but it’s not going to bring more money to my farm.”
Earlier this month Gov. Andrew Cuomo announced New York is officially America’s yogurt capital, surpassing California in 2012 as the nation’s top producer. Much of that growth has been fueled by the exploding popularity of Greek yogurt, and the expansion of that industry in New York. Greek yogurt requires three times more milk than traditional yogurt.
The question of why dairy farmers aren’t cashing in is outlined in a 2012 paper by Andrew Novakovic, E.V. Baker professor of agricultural economics at Cornell University.
Titled “The Chobani Paradox,” after the Greek-style yogurt manufacturer based in Central New York, the paper suggests that “although the dairy industry, generally and instinctively, desires growth, market and regulatory conditions sometimes makes the cost of growth appear larger than its benefit.”
Novakovic said there are three main reasons why dairy farmers are seeing little benefit from the yogurt boom. He said most farmers sell their milk through cooperatives, and this generally allows them to obtain a better price, but it also means the companies that purchase milk are not negotiating directly with the farmers, which makes it more difficult for a request for more milk to be met quickly and easily.
“Cooperatives can’t produce more milk,” Novakovic said. “What they can do is take milk away from somebody else and give it to you.”
Another issue is the dairy industry’s complicated pricing structure. Minimum prices are set by the federal government, and these prices vary depending on the use of the milk. Milk sold as a beverage is priced higher than milk used for other products, such as yogurt.
Technically, this means a farmer can make more money if his milk is sold for drinking rather than yogurt. But because farmers belong to cooperatives, they are paid a weighted average price of all milk sold by the cooperative, which means there’s little incentive for an individual farmer to ramp up production to accommodate high demand from a single manufacturer, Novakovic said.
Another issue is the decline in beverage milk sales, Novakovic said. While the increase in yogurt sales has helped offset this drop, it hasn’t made up for the fact that the most valuable kind of milk isn’t selling as well as it has in the past.
“There are a lot of moving parts in the dairy industry,” he said. “Farmers are losing sales of a high-value product and growing sales of an OK-priced product.”
Then there’s the fact that increasing milk production is expensive. Cows are not cheap, nor is building new barns to accommodate a bigger herd, or any of the other capital investments required to expand.
But Novakovic said the yogurt boom appears to be more than a passing fad.
“It’s looking pretty durable,” he said.
The growth of the state’s yogurt industry has been a positive, if overhyped, development for New York.
“It’s been a godsend for Central New York,” he said. “It’s a good thing. You might debate how good it is.”
Ammerman said the volatility of milk pricing makes it harder for the yogurt boom to benefit the state’s dairy farmers, who are also dealing with high feed and fuel prices.
“In 2009-2010, milk prices were extremely low,” Ammerman said. “We saw a number of farmers get out of the business. ... People aren’t drinking as much fluid milk, but there’s still a great demand for dairy products.”
But expansion isn’t easy.
“Dairy farming is a very expensive business to be in,” Ammerman admitted. “You can’t just run out and buy 100 cows.”
Jennifer Huson, a spokeswoman for the Syracuse-based Dairylea Cooperative, which represents Radliff, said, “Fluid sales have been declining steadily over the past few years, resulting in available milk to fulfill the needs from yogurt manufacturers. If the yogurt plants were not operating here, more milk would potentially be sent into balancing plants, generating a lower return for farms.”
Denise and David Lloyd own Maple Downs Farm in Middleburgh.
“Milk prices are not where they need to be to keep farmers in business,” Denise Lloyd said. “They were better last year.”
“Basically, the [yogurt boom] does nothing for us,” David Lloyd said.
Because the milk prices are set nationally, tight local milk markets have little impact on dairy farms such as his, he said.
“It’s good for the state, but it has no effect on our price,” he said.
Since 2000, the number of yogurt processing plants in New York has increased from 14 to 27, with another big plant, Muller Quaker Dairy in Batavia, expected to begin production soon. During that time, the amount of milk used to make yogurt in New York has increased from 166 million pounds to approximately 1.7 billion pounds, according to the state.
Fage USA started production in 2008 in the Johnstown Industrial Park in Fulton County.
According to the state, New York’s dairy manufacturers employed about 8,070 people in 2011, a 14 percent increase from 2005.
Bruce Krupke, executive vice president of the Syracuse-based Northeast Dairy Foods Association, which is comprised of companies that purchase milk for manufacturing, such as yogurt makers, said the state’s dairy farmers are still meeting the yogurt manufacturers’ demand, but “we’re starting to see a situation where demand could outpace supply within a year. We’re monitoring it and trying to assess where milk production is in the state.”
He said the milk markets were tight in winter and early spring, but “we’re starting to see a spring flush,” and more milk is coming onto the marketplace.
Yogurt manufacturers don’t want to pay higher prices for milk, but “the concept should be explored, because dairy farmers are losing out from reduced fluid consumption,” Krupke said.
Gov. Cuomo has been a big booster of the state’s yogurt industry, convening the state’s first yogurt summit in 2012 to bring together dairy farmers, yogurt producers and state officials to find ways to support the industry’s growth.
According to the state, New York’s yogurt plants have nearly tripled over the last five years, while milk production grew by more than 1 billion pounds. New York is the fourth largest milk-producing state in the country, producing 13.2 billion pounds in 2012.
In an effort to encourage milk production, the state increased the number of cows a dairy farmer is allowed to own before they are subjected to the stricter and more expensive regulations that cover larger farms. Starting May 8, dairy farmers can own 299 cows before the costlier standards kick in, up from 199.
Larger farms, known as Concentrated Animal Feeding Operations, must implement pollution controls under the federal Clean Water Act.
Krupke said the loosening of CAFO regulations is “not a panacea,” but it will “help move the state toward producing more milk.”
The state’s yogurt manufacturers want to buy local milk, Krupke said.
“The closer it is, the better it is, for the producer and the buyer,” he explained.
The state has also increased the funding available for farmers to invest in environmental protections by 11 percent, to $16 million.
Jennifer Edmiston, manager of home delivery at King Brothers Dairy in Schuylerville, which sells yogurt from Willow-Marsh Farm in Ballston Spa and Stoltzfus Dairy in Vernon Center, said they have been carrying Greek yogurt for at least a year.
“It’s very popular,” she said. “Now that the weather is warmer, it’s even more popular.”