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Dairy Needs Real Innovation

Story by Brian Wiedenfeld, Tom Kriegl, and Randy Jackson. This story was originally published in Hoard’s Dairyman.

William D. Hoard’s enlightened understanding of the importance of livestock to soil health, coupled with his courageous advocacy work, helped pull Wisconsin agriculture from the depths of despairing wheat production in the late 19th century. When year after year of wheat production led to devastating disease pressure, he opened a door to unimagined prosperity. Hoard ignited the concept of America’s Dairyland by understanding the importance of diversified cropping to break disease cycles, the role of livestock in recycling nutrients, and the importance of peer-to-peer education to making change.

Hoard’s lore, captured in the booklet “Hilltop Decision,” speaks of how Governor Hoard saw “good farmers” exiting the industry all around him, and he realized the importance of education and technical support to maintain families on the land. We might call his work agricultural innovation because he transformed the industry. That is, Wisconsin agriculture was never the same, and that was a good thing . . . “back in the day.”

William D. Hoard

Back to the present

Over a century later, we find ourselves in a similar state of despair with an urgent need for innovation. The march toward efficiency and increasing milk production has been a huge success with more efficient cows, facilities, and feed systems . . . but only if we ignore the social and environmental ramifications of these advances.

The prevailing approach to dairying that concentrates more and more animals on fewer and fewer farms is unraveling rural communities and degrading the environment on which we all depend. With simplified crops, farms once again reduce agricultural resilience. In some cases, nutrients leak into surface and groundwaters in ways that undermine the health of citizens. Also, spills from manure storage units cause much more damage than several smaller spills dispersed over larger areas.

Consolidation of economic power in the dairy industry is the result of the same economic forces and policies that Nobel Laureate economist Joseph Stiglitz identified as causing extreme inequalities and imbalances throughout the economy. These imbalances include lack of antitrust law enforcement in the area of monopolies; regressive tax policies where the more you make, the less you pay; and price manipulation that’s afforded by control of markets by a few actors. Stiglitz wrote an entire book of recommendations for correcting the undesirable impacts of concentrating market power.

The imbalances from consolidation of the dairy industry are pushing families off the land, which means fewer rural grocery stores, schools, and churches. Consolidation means more feed gets transported from farther away, while manure is spread locally to reduce costs. This drives reliance on higher-yielding, nutrient-demanding crops that can leave the soil exposed to erosion, and nutrients potentially leaking into waterways and the atmosphere.

These problems cannot be ignored or wished away. Our grandchildren deserve better. We need a 21st century “Hilltop Decision.” We need true agricultural innovation that transforms this system to one that supports profitable and diverse farms; thriving, vital rural communities; clean water; soil health; and biodiversity. While innovation is desperately needed, we must consider that it need not be a “technological advancement” but could come in the form of reframing what we call success. In the 21st century, success must account for a plurality of outcomes — yields to be sure, but soil carbon accumulation, nutrient retention, flood reduction, and biodiversity also must be valued and incentivized. In addition, metrics of community well-being — for example, employment, schools, equity, and diversity — must also be part of the value proposition.

A profitable solution

Managed grazing offers a productive and profitable means forward for the agricultural sector that can provide for our wants and needs today, while building capacity for future generations to do the same. We must restore perennial grasslands as the basis of our agriculture, but doing so will require us to fix the rules of the game . . . that is, our policies. Our policies must shape positive outcomes for the public good.

In a managed grazing system, farmers move animals to feed on fresh pasture that is separated into movable fenced areas to control herbivory on plants, compaction on soils, and nutrient return via manure and urine. Livestock spend several hours to several days in one area or paddock before moving to the next, allowing the previous paddock to rest and regrow, ensuring quality feed on each rotation and boosting productivity of the pasture. Because the animals graze and fertilize the pasture with their manure, there is less need for purchased feed, little or no need for fertilizer or manure spreading during the growing season, and less need for equipment and feed storage capacity overall, not to mention the countless hours of labor and fuel required to use these machines and facilities. These cost reductions contribute to significant savings in managed grazing dairy systems.

One of us (Kriegl) tracked actual financial data from the Wisconsin and U.S. dairy sectors, compiling and analyzing farm data using the Agricultural Financial Advisor computer program (AgFA), a tool for helping farmers and their advisers make more informed decisions about dairy farm management.

From 1995 through 2014, grazing dairies generated about twice the dollars of net farm income from operations per cow and about twice the amount of net farm income per dollar of gross income than the average confinement dairy (see table). This second metric, the two righthand columns in the table, indicate that graziers spent about 78 cents per dollar of income while confinement operators spent 90 cents for each dollar of income.

Why?

Mainly because the lower cost of production for grazing systems translated to greater realized profit on a per cow, per hundredweight, per hundredweight equivalent, and per dollar of income basis.

Many advantages

In the 16-year comparison of dairy farms in Wisconsin, Kriegl found that grazing farms had lower costs than confinement herds at the basic, non-basic, allocated, and total cost levels (see table). Measuring costs as a percent per dollar of income, graziers had advantages in 13 of the 21 basic cost categories and in all three non-basic cost categories.

A large part of the cost advantage for graziers was that a much higher percentage of investments are assets that do not rust, rot, or depreciate — cattle and land. In contrast, a much higher fraction of the asset investment for a typical confinement farm is for depreciating assets.

The cost of facilities and machinery needed for a large confinement system can only be recovered by using those facilities and equipment in ways that are economically successful for many years. Also, because livestock on grazing farms directly harvest a high percentage of their forage, graziers can use less expensive (often steeper, more erodible) land, more productively with less erosion than systems relying entirely upon mechanically harvested crops.

With lower involuntary culling rates, herd health also helped grazing farms reduce costs and enhance income compared to confinement operations. Veterinary bills are a smaller part of costs associated with herd health issues on grazing farms. Some, but not all, of this difference is connected to higher production levels of cows in confinement — much of this is related to higher levels of exercise, fewer foot problems, and fewer injuries for cows on pasture.

While grazing farms typically rely on mechanically harvested feed in the winter months, during the growing season a well-managed herd can harvest higher quality forage than a system that relies entirely on mechanically harvested feed. This reduces the need for the more expensive grain that confinement operators rely upon to a higher degree — cost savings that translate into greater profit margins for grazing farmers, even when they are producing less milk per cow.

The higher expenses associated with a confinement farm are more of a financial risk for beginning farmers and for all farmers in years of low milk prices. Sadly, farmers often are led to believe that if they just produce more milk, they will dig themselves out of debt, but typically this results in digging deeper holes.

Grazing systems are more flexible economically than confinement systems. Someone who invests in a well-planned grazing operation likely will be able to recover most of their investment if, a few years later, they decide to switch to a confinement system or quit farming entirely.

Short on support

For decades, federal and state agricultural policies have conditioned farmers to maximize yields per acre, so grazing systems are maligned for their lower production compared to the confinement model. Beyond policies, the ethos of farming is that more and bigger is better. Dairy profitability is correlated to the cost of production, not production itself. For a particular system, whether confinement or grazing, certainly more milk translates to more gross income, but if this is done by increasing costs too much, it will not improve net income. What encourages us to favor the gross over the net?

Cash flow.

Higher volumes of income, even if you’re realizing less of it, improves access to credit for more growth, allowing for more purchasing, hiring, and expanding, which are all rewarded socially, politically, and economically. Our policies and norms value income, wealth-generation, and inequality much more than the public good.

Not only are towns losing their people, but clean water, fresh air, and property values are all a concern. By surveying Wisconsin residents, UW-Stout economist Zach Raff and Marquette University economist Andrew Meyer estimated citizens would be willing to pay between $34.83 and $50.60 per household per year for cleaner surface waters, values that aggregate to $272,000 to $397,000 per CAFO per year based on their estimates.

Society must step up

Our current system rewards those who ignore the triple bottom line of economic, environmental, and social responsibility. We must transform the dairy system, and the entire agricultural system, by incentivizing and rewarding farmer profitability, community-building, and environmental health. That’s called innovation! Realizing this will require a transformative shift in consciousness, a new paradigm, and a game-changing reconfiguration of the ground rules, especially the macroeconomic ones that drive extreme inequality across society.

We need a system based on grazing perennial grasslands, where farmers compete in fair markets by improving their productivity within the constraints of their land base.

This must be designated by economic incentives that reward healthy environmental and social outcomes and regulations that penalize the loss of soil, nutrients, biodiversity, and services and people from rural communities.

If growing your enterprise means you’ll need to expand your land base, but the cows will have to walk too far for milking, you’ll need to expand your infrastructure to meet the cows where they graze. This may be with a distributed milking parlor model, mobile milking systems, or robotic milking and gate systems. Innovation will prevail.

However, the boundaries, the rules of the game, must be set by society because we require healthy ecosystems, healthy communities, and healthy individuals. If William D. Hoard were here, we think he’d agree and champion an educational campaign of innovation founded on well-managed perennial grasslands.

Wiedenfeld is a graduate student in the Department of Planning and Landscape Architecture, Kriegl is an emeritus farm financial analyst with the Center for Dairy Profitability, and Jackson is a professor of grassland ecology with the Department of Agronomy at the University of Wisconsin-Madison.

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