If local dairy farmers are going to benefit from consumers’ growing love affair with yogurt, something’s got to give.
With upstate yogurt facilities owned by Chobani and Fage expanding and a new plant coming online this summer in western New York, it would seem demand — and therefore prices — for milk produced by area farms would be on the rise.
But when it comes to milk, the law of supply and demand gets complicated, according to Washington County Farm Bureau President Tom Borden, who milks about 175 cows on his Easton farm.
“Having increased demand is good, and people consuming dairy is good, but yogurt turns out to be a lower-value product to the dairy farmer,” Borden said.
Dairy farmers are paid for the milk they produce based on a “blend price,” set by the federal Milk Marketing Order. That price takes into account demand for milk and the various products made from it, including cheese, powdered milk, yogurt and beverage milk.
Different classes of milk garner different prices in the market. And when farmers sell their milk, most often through a co-op, they receive a pool price — about a month after the milk is taken from the farm — as a way of evening out the disparate values of the various foods for which the milk was used.
Fluid milk for beverages garners the highest price in the market. Milk destined for yogurt is sold at a lower price. So, as the demand for lower-value (Class II or III) milk rises and the
demand for higher-value (Class I) milk falls, the price paid to farmers for their milk can decline.
It’s a system that breeds uncertainty, and it has been targeted over the years for restructuring, most recently in a proposal last week by U.S. Sen. Kirsten Gillibrand.
New York yogurt producers, complaining they can’t get enough milk from New York farms, have begun to buy milk from outside the state to keep their factories going, according to a March 23 Associated Press story. But farmers like Borden suspect the real issue is price, an arena in which New York farmers suffer a disadvantage.
“We need to address why it costs so much now to produce milk,” Borden said. “Farmers are caught right now with a price for milk that would have been, by standards even five or 10 years ago, very good. Yet dairy farmers aren’t doing that well in general, and that’s because the costs are so much higher than we could have imagined.”
Prices for grain are elevated nationwide, in part because of a severe drought in 2012. But New York farmers face property tax and utility bills that are higher than other agricultural states, Borden said.
So, as yogurt producers seek the lowest possible prices for milk to compete for economically stressed consumers’ grocery dollars, and New York milk prices continue to be seen as less competitive, it seems more out-of-state milk is destined to end up in New York’s yogurt factories.
Like Borden, Jeff King, co-owner of Kings Ransom Farm in Northumberland, is cautiously optimistic about the growing popularity of yogurt.
“In general, I would say any new uses for dairy products will create more demand, and that’s good for dairy farmers,” King said. “That being said, it’s not been a windfall for dairy producers.”
King also said the prices dairy farmers are getting for milk are “decent,” from a historical perspective. But rising production costs are keeping most farmers from expanding their herds — an expensive and long-term commitment — to provide more milk to feed the yogurt craze, he said.
“I’m sure there might be other farms that are looking and interested, but I would say the overall general mood of dairy farmers across the Northeast is not one of tremendous expansion,” King said.
The ‘value-added’ approach
Some local farmers have been able to capitalize more directly on yogurt’s rising popularity.
David and Marge Randles, owners of a dairy farm and the Argyle Cheese Farmer on Coach Road in Argyle, have been making yogurt in their on-site production facility since 2007.
Initially, the focus was on cheese. A year ago this week, things changed. That’s when New York Magazine published a story about a taste test it conducted pitting New York farm-made yogurts against larger made-in-New York brands, including Chobani and Fage.
Argyle Cheese Farmer’s full-fat Greek yogurt was named the best in that category.
The Randles now struggle to keep up with demand for their yogurt in New York City restaurants and hotels. They have purchased a 500-gallon vat to triple production, but they now need to find a new production facility big enough to house it.
The cheese side of the business has been stifled, as a result.
“We spend three days making yogurt (in a 150-gallon vat) when we could do it in one day (in the new vat),” Marge Randles said. “And I’ll tell you, our new processing plant’s going to have room for a second 500-gallon vat.”
Randles said the search for a new production facility has been challenging because of the need for municipal water and wastewater access. But she’s hoping the business can remain in Washington County.
The Argyle Cheese Farmer has also landed a new distributor who is taking 20 cases of the farm’s yogurt — about 200 quarts of each variety — to New York City each week, and there’s a second distributor waiting in the wings for the farm’s manufacturing capacity to increase, Marge Randles said.
Beyond adding a revenue stream, the growing business is also a customer for the Randles’ dairy farm: a buyer willing to pay a premium for the quality milk it takes to make the lauded yogurt. And there’s the rub, as far as Marge Randles is concerned.
She said she was baffled by the Associated Press story about major yogurt manufacturers turning to out-of-state dairies for milk.
“We just shook our heads and said, ‘What don’t they understand about supply and demand?’ ” she said. “If they would pay a premium for the milk — or just a little bit more — they would have all the milk they needed.
“In fact, they’re buying Class III milk, which lowers the price of the fluid milk. If they want milk, they could go to some really good farms and say, ‘We’ll pay you this, if you’ll ship your milk to us.’ They don’t want to pay the farmer a reasonable price.”
Randles said the yogurt and cheese operation uses about 225,000 pounds of the milk produced by her family’s 50-cow dairy farm each year. The rest of the milk, approximately 750,000 pounds, is sold the same way other dairy farms sell their milk — through a co-op.
A history of success
The value-added business plan has helped other dairy farmers in the region deal with price uncertainty.
Seth McEachron, co-founder and owner of Battenkill Valley Creamery in Salem, is about to celebrate five years in business and said the decision to market farm-fresh beverage milk directly to consumers has already paid off.
“When we first got into the business of value-added product, we tried to figure out what we wanted to be our focus: fluid milk, yogurt, butter, cheese,” McEachron said. “Different farms that have gone into the value-added aspect have chosen different methods.
“We picked fluid because we thought that was the best way for us to move a lot of volume of product in a fairly small area, just because people go through a lot of fluid milk.”
McEachron added the venture has grown to the point where it’s using essentially all of his farm’s milk, freeing the business from complicated pricing formulas. The farm has about 370 milking cows, he said.
Looking back, he’s pretty sure he’d make the same call again, even if today’s yogurt trend had caught on earlier.
“We’re happy with the decision we made, so I wouldn’t want to say, ‘I wish we didn’t do fluid.’ It’s what we’ve done, and it has worked out well for us, and we’re very happy with how things have been going and are going.”
No easy solution
Sandy Buxton, an educator with Cornell Cooperative Extension, has heard a lot of inquiries from farmers interested in embarking on value-added ventures, but she doesn’t expect yogurt to become a staple on area farms.
“There’s nobody else doing cow yogurt (in the area), but the whole cheese thing is catching on, and I get a lot of calls from people asking about cheese,” Buxton said.
The biggest barrier to farmers is likely to be the upfront investment, she said.
“Everybody’s looking for some level of opportunity to diversify, but the investment’s a killer,” she said. “And the other thing I try to drive home is ... you don’t just leap into this in a small way. You’re going to invest $200,000 to $300,000 in (a yogurt production operation). You can get into cheese at a lower price, so probably $50,000 to $100,000, but if your plan is to grow, like Marge and Dave (Randles) did, then you’ve got to think that through in terms of investment.”
Borden, the Farm Bureau president, thinks it would probably be disastrous if every farmer in the region jumped on the yogurt bandwagon.
“I don’t think it’s for everybody because a lot of effort needs to go into marketing,” Borden said. “I think there’s opportunities for a few farms, but if everybody was doing it, everybody would go broke because there isn’t enough market for everybody.”
Borden and King, with Kings Ransom Farm, agree real relief for dairy farmers will likely come from traditional places — higher wholesale prices, lower overhead or, preferably, both — before the industry is saved by a new consumer trend.
Dairy farms provide a commodity in predictable, hard-to-change quantities every day. And the product itself needs to get to a buyer quickly or it will spoil.
Such realities tip the scale of supply and demand in favor of those who buy milk from dairy farmers, King said.
“The best thing would be for dairy producers to all agree, ‘We’re only going to make so much,’ ” King said. “Coca-Cola produces the amount of Coke they need to sell what they can sell. And they don’t produce extra, and say, ‘Well hey, does anybody want to buy Coke for 50 cents a bottle instead of $1 a bottle, because we’ve got a little extra?’
“It’s a challenge in the dairy industry because we can’t turn our factory on or off. We’ve got cows that are biological units. Maybe the demand is down, but we can’t just go out and say, ‘OK cows, you’ve got to make less today or we’re going to turn half of you off.’ They’re still going to make milk, and the milk’s got to go somewhere.”
In fact, a supply management clause aimed at limiting the amount of milk farms could produce was added to last year’s Senate Farm Bill, though the idea is a subject of debate among legislators.
The Senate passed the bill, but the House has not passed a version of the Farm Bill, leaving the legislation in limbo.