The profitability of large dairy farms is driven by economies of scale, leading Rabobank to believe the long-standing trend of consolidating milk production is here to stay.
These findings are part of a new report from the Rabobank Food & Agribusiness Research and Advisory group, which explores consolidation in the U.S dairy sector ”Over the last few decades we have seen a transition in the industry and the rise of larger farms,” notes report author and Rabobank dairy analyst Tom Bailey. “These larger operations have created a great deal of positive change for the U.S. dairy industry, including reduced environmental impact through much more efficient production.
“ The report, “Economies of Scale Driving Consolidation in U.S. Dairy: Farmers and Processors Should Both Pay Attention,” goes on to note the increase in larger dairy operations has picked up speed over the last decade as market volatility and industry changes have made dairy farming more challenging. Data going back to 1970 indicates the U.S. dairy industry has seen a steady increase in the average size of dairy farms as larger operations benefited from economies of scale. ”The dairy market is definitely more voliatile than it was 30 years ago, but if consolidation and growth are done proprty, the operation is ultimately more profitable for large and efficient producers,” notes Bailey.
The increasing rate of change has boosted consolidation of U.S. milk production, putting increasing influence in the hands of large farms and sending ripples throughout the U.S. dairy industry. With large farms likely accounting for the majority of growth in the coming years, U.S. dairy producers and processors alike should be considering the potential impact of this change. ”We find many of the most motivated and successful dairy owners seek growth as part of their future strategy,” notes Bailey.
“We expect both challenges and opportunities for producers and processors alike over the next 10 years. As large farms increase their market share, they will continue to put pressure on processors to give them a voice in how their milk is used, they will also face headwinds from increased regulations, consumer pushback, and the implications of being a highly visible part of the industry. For large farms to appropriately address these challenges will take time and money.”
Source – Farms.com