The explanation for the shrinkage is simple but problematic for smaller dairy farms: Cooperatives across the agricultural industry are consolidating.
Darin Von Ruden, Westby dairy farmer and president of the Wisconsin Farmers Union, finds the increasing number of cooperative mergers worrisome, noting consolidation was especially prevalent in northwestern Wisconsin.
“We have fewer and fewer places we can sell our products to,” Von Ruden said. “We’re lucky in southwest Wisconsin we have a few different places, but it’s a different story in the northwest.”
He added that cooperatives such as Dairy Farmers of America have become “marketing giants” in the southwest part of the United States.
“If that’s the way they’re going to carry on their business around the rest of the country, that is a scary thought for the 50- to 100-cow operators,” Von Ruden said.
The cooperative consolidation trend is expected to continue when the 2016 and 2017 USDA reports come out, says Jim Wadsworth, agricultural economist of cooperative statistics in the Policy & Research Branch of USDA Cooperative Programs.
Many industry experts are concerned about the recent consolidations. Cooperatives account for about 30% of the agricultural market and 82% of the dairy industry.
As more cooperatives merge, dairy farmers have fewer options for selling their milk, said Peter Carstensen, a University of Wisconsin-Madison law professor and expert in antitrust law and competition policy.
“The consolidation around a handful of dominant cooperatives creates a substantial potential for arbitrary and capricious conduct by those handlers,” Carstensen said. “The dairy farmers have very little recourse.”
Carstensen cited an instance in New England where a cooperative cut off a group of dairy farmers due to small size, and the farmers could no longer bring their milk to market.
Before cooperatives merge, a large portion of their members must vote in favor of the merger, sometimes up to 60%. Wadsworth said such a large percentage is needed because producers lose local autonomy once cooperatives become larger.
“In many cases, it’s an emotional thing for farmers,” Wadsworth said. “It goes back to their grandparents. They’ve always had this cooperative down the street, and all of the sudden it’s headquartered somewhere else.”
Mergers happen for various reasons. Sometimes, two competing private cooperatives may merge to become more efficient, Wadsworth said. In some cases, a merger is an acquisition where one entity will buy out a weaker cooperative to gain its location, members and business.
Wadsworth added that cooperatives run into new challenges as they grow. As they expand beyond state lines, their governance and operation systems become more complex.
Cooperatives are a unique business model because the owners are the farmers. They vote on any major decision and board leadership.
Carstensen fears that as the cooperatives continue to grow and more members join, an individual vote will make less of a difference. Having such a large group of members will make it difficult for members to hold board leadership accountable.
“There is simply no way to organize those folks to challenge the incumbent management,” Carstensen said.
Dairy Farmers of America, headquartered in Kansas City, Mo., is a cooperative that has farms in 48 states. John Wilson, senior vice president and chief fluid marketing officer, says it gives dairy farmers national support.
“Nearly every vote at the DFA board has been unanimous,” Wilson said. “Whether they’re large or small, east, north, west or south, the dairy farmers on our board realize they have many more things in common than they do different.”
Wilson added that cooperatives such as the DFA provide farmers with a more secure market for their milk and, therefore, a more reliable milk check.
However, some smaller dairy farms may have trouble getting large cooperatives to buy their milk, and with more mergers, it may be difficult to find alternatives, Carstensen said.
“You don’t get paid for your milk unless someone is going to buy it from you,” Carstensen said.
The increasing consolidations also concern Pete Hardin, editor of the dairy publication The Milkweed. He said mergers tend to happen when cooperatives are not doing well financially.
“A lot of the time it’s not a marriage of strength but a marriage of weakness,” Hardin said.
Although many cooperatives are merging, some remain independent.
An example is Organic Valley, a dairy cooperative headquartered in La Farge, in Vernon County.
Organic Valley has a joint business venture with Dean Foods to help get its products into small markets such as drugstores, but Bob Kirchoff, Organic Valley chief business officer, said he does not foresee Organic Valley merging.
“There are smaller producer pools we may look at to bring into ours,” Kirchoff said. “But I wouldn’t use the word merger.”
Kirchoff added, “Our basic tenet is to provide our organic farmers a stable livable pay price that can take their family business into the next generation.”