Penn State Agriculture Magazine

Specializing in profits
Specializing in a facet of dairy farming, rather than trying to do everything, also could help small farms survive. “I’m not sure the traditional model of a dairy farm can succeed in the future for smaller farms,” Hyde says. “Smaller farmers may have to specialize by buying their feed rather than growing it themselves, or having a custom grower raise their heifers, so they can concentrate on just milking cows.”

Specialization also can help farmers avoid the burden of purchasing all of the technology needed for the multitude of tasks on a traditional dairy farm. “Typically, small farms try to be self-sufficient —they grow all their crops and they buy all their own equipment, including a $150,000 milking parlor,” says Gary Sheppard, senior extension agent in Westmoreland County. “The problem is that the investment per cow on a small farm is much larger. Small farms can’t spread the investment over 500 or 1,000 cows the way the larger farms can.”

Many smaller dairy farmers carry uncomfortably large amounts of debt. “An industry benchmark is that a dairy farmer should carry no more debt than $3,500 per cow,” Sheppard says. “Another rule of thumb is debt should equal no more than 70 percent of assets. We have too many small farms with $250,000 to $300,000 in debt, and that debt just hangs there. They pay it down some, and then suddenly they have to borrow more to buy a piece of equipment like a $40,000 forage harvester.”

So far, few farmers have embraced the concept of specialization, but many small producers have shown interest. “There are a couple reasons why we haven’t seen much specialization yet,” Hyde says. “First, it’s a different way of doing things, and it can be hard to change. Second, there is a perceived risk, because farmers must give up a degree of control. Giving someone control over harvesting their crops, for example, may be uncomfortable for them. Nevertheless, in the near future many small dairy farms will not try to do everything, especially given the difficulty of finding labor.”

Innovative education for dairy producers
In response to the challenges Pennsyl-vania’s dairy farmers face, the college is developing new approaches to help them build management skills and find strategies that can help them thrive in the years to come.

One of those approaches involves collaboration across county lines. Budget constraints make it impossible for Penn State Cooperative Extension to have experts on all facets of dairy farming in every county. So a group of 10 extension agents in the seven counties in extension’s Capital Region—Dauphin, Cumberland, Lebanon, Franklin, Adams, York, and Lancaster—formed a dairy team that enabled greater specialization among the agents and made their collective expertise available to farmers in the region.

The Capital Region Dairy Team focuses its educational efforts on three areas of farming: production management, financial management, and business management. The group offers hands-on, “on-farm” workshops on topics such as robotic milking, reproduction management, and transition cow procedures. Participants spend time in a classroom instructional setting before getting the opportunity to try out the techniques they learn on cows and equipment.

These days, of course, what dairy farmers need to learn goes beyond business management and dairy science. For instance, this past winter, the Capital Region Dairy Team offered a workshop on Spanish for dairy producers, in which instructors taught farm owners and managers basic Spanish to help them communicate better with their Spanish-speaking employees.
“Twenty-two producers signed up for those programs,” says Smith. “Now most of those farm operators are able to ask their Spanish-speaking employees about their families and better explain what they need to do on the farm. Dairy farms are struggling to find and keep good employees, and workshops like this help them overcome labor challenges.”

Producers seeking to enhance their management skills also have a resource in the Dairy Alliance. Established by Penn State in 2000, the alliance brings together agribusinesses, industry organizations, and others to teach dairy operators to deal with issues such as human resource management, business management, information technology, and nutrient management.

“Our goal is to design proactive and cutting-edge programs for progressive dairy producers,” says Brad Hilty, Dairy Alliance information management specialist. “The programs we offer have been well attended, and the attendees have indicated that they are pleased with the level and quality of our programs. The feedback we’re receiving from the dairy industry is very positive.”

Through programs such as “Dairy Accounting and Benchmark Standardization,” “Busines$ense,” and “Dairy Information Analysis,” Dairy Alliance aims to help the entire industry gain a competitive advantage. “Being successful in today’s rapidly changing agricultural environment means learning new skills faster than your competitors,” says Tammy Perkins, Dairy Alliance program manager. “We’re working to improve access to the educational resources necessary for success in today’s dairy industry.”

“On the smaller farms, the operator typically can’t afford a full-time hired hand, so the operator is tied to the farm and does nothing but work,” explains Sheppard. “Too often, small operators don’t have time for their families, or for anything but work.

“Unlike other small businesses, on a small dairy farm, the operator is the business,” he adds. “So often, personal problems such as marital issues ruin a farm. A small dairy farmer can make it financially in Pennsylvania, but he has to ask himself, ‘Is this the kind of life and career I want?’ That is the big threat I see to small, family dairy farms.”

The fact that many small dairy operators work harder and longer hours than most people is a deterrent to recruitment of young dairy farmers. “Many smaller dairy farmers aren’t pushing their kids to get involved in dairy farming because it is such long, hard work,” Sheppard observes. “We have a lot of 45- and 50-year-old producers facing a real dilemma. Do they go out and borrow a whole lot of money to modernize, or do they do nothing and have a completely obsolete dairy when they retire? They don’t want to borrow for their kids, because the reality is that their kids may not want to work on the farm.”

“But if we want the next generation to stay on the farms, we need to create a positive situation both in lifestyle and the income to support that lifestyle,” counters Bair. “Successful farms breed successful farms. We can and do have successful farms in Pennsylvania.”

When the children don’t stay in the dairy business, it can mean the end of a small farm. It is nearly impossible for a young person to acquire the equity to start a modern dairy farm from scratch, and larger dairy farms are usually formed when the owners of smaller farms decide to sell their assets to a larger operation. Making the decision to sell a family farm can be traumatic. “One of the greatest dairy business challenges comes when it’s time to sell the smaller farm’s real estate,” says dairy scientist Bill Heald.

“Often, the next generation of producers finds it very difficult to pay today’s prices when buying the dairy facilities, land, cattle, and machinery while living on the small farm income,” Heald says. “There just isn’t enough income to pay the new debt.

“During the career of some of today’s producers, land, cattle, tractors, and expenses have increased nearly tenfold while milk has only doubled or tripled in price. Often, the farmland is worth more for nonfarm purposes than for dairying and goes out of production. Large farms find this farm transfer debt easier to manage, because they sell more milk per cow and per farm with lower costs.”

“Both small and large dairy farms require succession plans,” Holden observes. “Many second- and third-generation dairy producers enter the business through a family dairy operation.”

Indeed, dairy farming in Pennsylvania continues to be almost exclusively a family tradition. “I don’t know a single dairy farm in our state that’s not operated by a family,” says Bair. “It’s a way of life. Some families have decided to invest to get bigger and increase profits so more family members can be involved in the operation.”

“If you have just 50 cows, you can’t bring a son or daughter into the operation,” says Bailey. “There isn’t enough revenue being generated—you’re not big enough. What I often see is that mom and dad have a successful family farm, and their son or daughter comes to Penn State to learn some good dairy science. The family then uses the equity it has built to borrow money, and expands the operation so there is room and revenue for the child in the operation.”

Houser, who intends to keep farming as long as he can just because he “loves working with cows,” is philosophical about the future of small, family dairy farms. He sees reason for optimism. “Dairy farmers are a special breed—they’ll do what they have to do to succeed,” he says. “They’ll work out the problems and deal with the challenges they face. They always have.”

Faculty and staff referenced in this article are Ken Bailey, associate professor of agricultural economics; Alan Bair, director of dairy industry relations; Bill Heald, professor emeritus of dairy science; Brad Hilty, senior extension associate and information and management specialist for Dairy Alliance; Lisa Holden, associate professor of dairy and animal science; Jeff Hyde, associate professor of agricultural economics; Tammy Perkins, extension associate and program manager for Dairy Alliance; Gary Sheppard, senior extension agent in Westmoreland County; and Vinton Smith, extension agent in Adams County.