Monday, January 18, 2021

What is really happening in the dairy business?

 

We cannot create solutions until we identify the real problems.

Overview

“Milk” (the lacteal secretion of domesticated dairy cows, populations distributed worldwide) is an agricultural commodity, which is either consumed in its natural “fluid” state or separated by its components into various manufactured food products, either sold as such or used within the packaged/processed food sector.    The labelling of any milk product for consumer consumption follows standardized nutrition formats and product definitions determined by USDA, a federal agency that overlooks and advises and regulates all of production agriculture since 1933.

The production of milk in the western world is generally regulated by a “permitting” process in which the facilities must meet water and sanitation standards, the cows must be monitored for infectious diseases, and the manure handling system must insure proper recycling of the waste nutrients into the soils producing the feed for the animals so that ground water is protected.

Two levels of inspection – federal and state government, and milk marketing procurers – have authority to suspend permits at any time they believe their statutes or their membership rules have been violated.    More recently, “animal care and comfort” protocols have been added to the basic sanitation and milk quality regulations, a response to consumer advocacy concerns.

Beverage sector competition

To the grocery store and consumer, “Milk” implies cows’ milk.   There are two parallel labels for cows’ milk, representing the defined production processes of (a) “conventional” milk [meeting basic “Grade A” rules] and (b) “organic” milk [produced under standards determined by USDA].    At this time, 90% of all jug milk is “conventional” produced and 10% of all milk is “organically” produced.     In manufactured products, 95% draw from conventional supplies, 5% from organic supplies.

If coming from any other source it will have a prefix identifying the source: “Goats’” milk, “Soy” milk, “Almond” milk (in ethnic communities you may see “horse”, “sheep” or “camel” milk).    In recent years milk products other than cows’ milk have gained traction due to misinformation on dairy cows’ contribution to atmospheric gases, or from basic health concerns to which the dairy industry has not responded in any coherent way.

Beyond this, you have the soda industry (including cola drinks), the brewing industry (beer and wine), and the expanding fruit and vegetable juice industries.    You have the proliferating tea and coffee industries (which includes some products with milk or cream added) served both hot or cold.    You also have some hybrids, for example, fruit smoothies and drinkable yogurts flavored with fruit juice (as well as traditional fermented milk products).     Reconstituted milk beverages designed as “lactose free” (for those diagnosed as lactose intolerant) have expanded into the category of “sport” drinks as consumers increasingly struggle with weight issues.

Other than the controversial Ultra-High-Temp pasteurized category of milk, refrigeration is required for dairy products, and all dairy labels will have a stated “sell by” date (limited shelf life)—in the case of bottled milk, this usually is a three-week expiration.    Much Federal law encourages pasteurization of all animal, vegetable and fruit beverages, and most USA State governments enforce this with a prohibition of “raw milk” sales [a few states still have “certified milk” permits, which require twice annual TB tests of all animals in production, and removal of any suspects from the edible supply].     The companion Listeria infection has been added to the threat of Tuberculosis in the raw milk supply to enforce pasterization for any commercial sales.

So what is “legal” milk?

USDA administers a system of FMMOs [Federal Milk Market Orders] in which the prices paid by handlers to farmers or farm marketing cooperatives are averaged to provide a standard price for milk at the farm gate.    Regional dairy consumption trends determine the pricing formula farmers are to be paid, under either Fluid +Butterfat (southern orders) or Multiple Component  (northern orders) pricing.      MCP orders determine a “market value” for each fraction of milk composition:  Butterfat, Protein, Lactose, Minerals, and Fluid carrier.     These are based on an analysis of the various sales dollars for each product form.    FBF orders basically consider the percentage of milk utilized for bottling, and then establish prices for each manufacturing class of milk (cream products, cultured products, nonfat milk powders, cheese) as if bottled milk was the “highest use” class of milk, cheese the “lowest use” for milk surplus to bottling or culturing.

Some farmer-member milk cooperatives are also processors producing retail dairy packages.   Others just strive to find private handlers to process and retail milk.    Private handlers must pay the FMMO stated price for milk received, but cooperatives can “underpay” as part of the supply “balancing” function (as when they may sell milk below wholesale into another FMMO than in which it was produced) (or when they have to dump milk as unsold production).    

The Federal Food and Drug Administration (FDA) gets into the business by defining labels for milk, and has defined categories as “skim” milk, “1%” milk, “2%” milk, and “whole” milk.    All of this is based on butterfat content, ie, skim = 0% BF, 1% BF, 2% BF, and whole = 3.25% BF.    Milk on store shelves is subject to inspection and a dairy processor can be fined if the butterfat (and total solids) content of any jug product differs from its label definition.    Back in the 1970s-80s when the “Dairy Lobby” in Congress was throwing money about, as butterfat% content was an issue related to more bad health science [thinking it was animal fats causing our obesity, rather than what we now know refined sugar is the culprit] – lobbyists got it written into the FDA rules that any butterfat removed must be replaced by non-fat milk solids (protein, lactose) so that all milk jugs would contain the same total milk-derived solids content.     This made milk protein of more value in the market, butterfat of less value, for the next 30 years (the time it took human nutrition research to catch up to reality).

The dairy production industry expanded greatly in the 1970s as USDA invented subsidies for the fluid milk production, and the processing industry followed with a period of consolidation.  

Symptoms

 

Milk haulers retire, their routes consolidated onto bigger trucks.    Due to the greater overhead, against a system in which rates are set by pounds shipped, smaller farms are originally told they must pay stop charges—then may later be told the hauler will no longer come (he can fill up his tanker from fewer, bigger farms and save some time off his work day).     The distance from the route area to the receiving plant gets greater as obsolete plants close, the times waiting in line to be unloaded at the remaining locations also get longer.     While expansion dairy farms got a lower hauling rate for “volume” the traditional farms got to make up the difference.

Dairy plants still in operation from the era before the 1970s fluid expansion, are now facing an obsolescence and are being closed, with processing consolidated into newer, expanded plants.    Any direct-ship farmers dependent on those local plants have found themselves without a place to sell their milk, given the modernized dairies were already aligned to receive milk from bigger expansion dairies.      The larger national-brand processors (such as Dean Foods and Bordens) facing competition from national-chain supermarkets that have built their own dairies to cut out a wholesale middleman, have lost a significant market share, and closing their smaller and older plants became a reaction to lost market share.     Government requirements for access to water treatment facilities for dairy plant wastes contributed to location consolidation.

Michigan allowed itself to become the poster child for States that did not adequately regulate the permitting process to ensure that dairy expansions had a market for their milk (this is done in many other states, for example Colorado).    In a seven year period, Michigan expanded its dairy “herd” by 100,000 cows (a 33% increase) without any increase in processing capacity in FMMO #33.     ”Distress” milk started crossing state lines seeking a home, and much of unsold milk ended up being dumped (skim milk on fields, whole milk into manure lagoons).     In the face of flat overall demand for dairy products and a decline in fluid “skim milk” sales, it soon caused farm gate prices to drop nationwide (100,000 cows means 7,000,000 pounds daily, or 823,500 gallons daily, at average Michigan Holstein cow production levels.)     The lack of new processing capacity meant that exportable (nonfat milk powder, butter, cheese) milk forms could not be made fast enough to entice foreign buyers.    In the face of this disaster farm and processor lobbies both argued against any form of supply management.     Overproduction has an economic side effect of further “dumbing down” this production to its lowest, commodity, generic forms, given the design of the milk procuring system is to “pool” milk supplies.

The problem with pooling

The effect of “pooling” has been to force all the milk produced in any area onto the same milk truck.     Any unique differences between farms, in their feeding and production program as it affects milk flavor and shelf life, in genetic choices affecting milk compositional quality and any potential fits for specialty marketing – all got “dumbed down” to the lowest quality of milk on that tanker.     Market premiums were spread over all farms, whether they earned them or not.

For years (as breed specialty bottling was forced out of business by competition from various consolidating national labels) (as those breeds other than Holstein began to disappear) no one gave this any thought:  after all, at the receiving plant, milk could be separated  into its various components.     Homogenization (to force butterfat particles smaller and harder so they would stay in suspension) became a popular selling point with two-income households, saving time over traditional “creamline” milk bottles as doctors began promoting lower fat diets.   

“Pooled” milk produced a change in genetic selection in favor of “one size fits all” ranking indexes that aligned with what could be marketed from a pooled milk supply.    Milk became generic—“milk is just milk” whether cows pastured or were confined, whether they ate fresh or fermented feeds, whether they were able to produce cheese curds or not, whether they had any added vitamins and minerals in their milk or not, whether they caused digestive upsets (from mutated A1 Beta Casein) or not.     Marketable breed differences became neutralized and lost to the God of the single milk truck, and the smaller dairies who specialized in marketing all those advantages were bankrupted by price competition from generic plastic milk jugs.

Commercial milk as it is today

Follow milk as it leaves its farm of origin, onto a semi-trailer tanker, commingled at each stop until it reaches a receiving plant.    It may travel all day before unloaded into refrigerated silos to be (first) flash pasteurized, then separated (to remove the cream), leaving the nonfat milk components to be powdered (which may require further separation between casein-protein and lactose) while the cream goes into churns to produce butter.     Your typical cooperative “balancing” plant is a separator, a churn, and a dryer.     Its products are designed and will be packaged in quantities that are standardized to the wholesale industry (as in 40-lb blocks of butter and 50-lb plastic-lined paper bags of nonfat milk powder).

For some cooperatives, the balancing plant may simply be a cheese plant, churning out 40-lb barrels of cheddar, again to be sold at wholesale for use in food processing.   

If the plant is receiving more milk than its processing capacity, milk will be reloaded onto an over-the-road tandem tanker and be routed to another handler.    This might be in Florida so add on a couple more days in transit from the time the cows were milked.     In the case of any milk the cooperative is selling to a local dairy, typically milk routes are scored on the Federal inspection system, and it will go directly from the farm route to the retail processing dairy.   But not always—sometimes dairy orders are filled from pumping over milk at a receiving plant.

The difficulty of economics in a “matured’ industry

Milk bottling off the farm began with brewery dairies in big cities in the 1880s.     Things ran along pretty independently until the Great Depression, at which point farm products began to turn into commodities by USDA definition.     Once you have a fully commoditized product, the only profits fall to “least cost” producers, but consolidation leads to “volume” preferences.    The dairy subsidies of the 1970s overheated production as soon as technologies for volume production came into place.     More was better became the “one size fits all” solution to any trouble we had along the way.    Milk cooperatives got confused in their mission, thinking the market was the government, providing subsidies – not the consumer, providing consumption.   “Volume” – “pooling” --  bigger is better, and we lost sight of the basics of milk’s values.

What that means in the jug of milk at the store

You have a product that has been “reconstituted”.     Farm-tank milk is first pasteurized, then skimmed to remove all cream; that cream is homogenized, then the required percentage added back to the vat to be bottled.    To make up any deficiency in total solids content, a bag or two of powdered nonfat milk protein or lactose can be dumped in and agitated to mix it back into suspension.     As the vitamins in milk are fat solubles (removed when the cream is separated) some supplemental vitamins (in liquid form) will be added in to “fortify” the milk.    Note that if the price of nonfat milk powder is rising the proportion of casein-protein to lactose may end up in favor of an elevated lactose content (compared to natural milk).    The law does not state a required proportion of lactose to nonfat powder in the reconstitution process.

Ultimately it is this added lactose fraction combined with lower fat content that now makes the skim milk packages a bigger source of obesity, while “whole” milk is now shown to be an aid to weight control.    But the dairy industry (stuck in the 1970s) still will price skim, 1%, 2% and whole milk at the same price—sending a confusing signal to the milk buying consumer, while lowering the component price recovery to the dairyman.

As for “whole” milk, except in areas where expansion mega-dairies already produce a “skim” milk level of butterfat and protein, the typical blended milk marketed through cooperatives arrived with 3.75% butterfat  (.50% higher than the Federal standard for “whole”).

Milk digestibility

There are three levels of contention as to the digestibility of a commercial jug milk product.   First, there is the difference between “flash” (continuous flow) and “batch” pasteurization.

When Mom used to heat the milk can on the stove and had us watch the thermometer afloat in it, the needed temperature for pasteurization was only 165 F for two minutes to kill pathogens.    In this time and at that temperature, the natural enzymes in the milk that are there to assist us in digesting the lactose remain alive and viable.   In a balancing plant, to insure pasteurization as milk flows through superheated tubes as a continuous flow process, the temperature is above that used for batch pasteurizing, high enough to damage those enzymes.

Second, there is the chemical changes wrought by homogenization.    The screens through which cream (or milk, in a bottling plant) is forced to pulverize the butterfat into very small particles are at 600 F.     At this temperature, any remaining enzymes are killed, and the fat globules are transformed into hardened little nuggets that are more difficult to digest.

 

Changing medical view of dairy products and our industry

The typical heart doctor believes the plaque that forms in arteries could be started from the hard little nuggets of superheated butterfat floating around in a homogenized jug of milk that pass our stomachs undigested into the bloodstream.

Third, there is the relatively recent discovery of a mutant form of Beta Casein that only occurs in bovine milk (not in goats, not in water buffalo, not in sheep or horses or humans).   Called A1 beta casein, the molecular form has substituted a “histamine” molecule for the benign enzyme (called A2 beta casein) that is part of the method by which milk is digestible to humans.     It is now tentatively confirmed by recent studies in Germany and Oregon that much of the “lactose intolerance” diagnosed may actually be an allergic reaction to A1 Beta Casein.

The first and second aspects of milk digestibility are manageable in a pooled milk supply just by changing milk processing design.    The third, however, requires genetic segregation of cattle to produce an A2A2 Beta Casein milk that is kept separate (not “pooled”) all the way to the jug.  

Relative product yields

Recently, a major milk cooperative lost a lucrative supply contract to a significant size cheese plant for repeatedly shipping them milk that would produce quality cheese curds and in the expected economic yield of cheese.    This was a milk cooperative that in its earlier days had assisted its major handlers in running local cheese production companies out of business who had the bad habit of procuring their milk directly from farms (cutting out the local cooperative “pooled” milk supply).    In spite of going through the 1990 to 2010 era, when protein earned twice the price of butterfat (a result of growth in cheese consumption) the management of this cooperative still thought of cheese as a use for “surplus” milk (the old “Class IV” category).

Two factors can degrade milk in its ability to set firm cheese curds:    (1)   Proportion of fresh or field-dried to fermented and oilseed sourced feed;  (2)  Level of the “B” and “E” Kappa Casein genes and “B” Lacto-Globulin in the milk supply.

In Kappa Casein genes, the A gene is “average” curd formation, the B gene is “enhanced” curd formation, and the E gene (also a more recent mutation) inhibits curd formation.    The B form of Lacto-Globulin affects the speed at which curds form, which can also have importance in a large-scale cheese production facility.     Prior to the shifts in genetic evaluation favoring the indexing of component yield volumes, there were major breed differences in Kappa Casein: 80% of Jerseys had the B gene, 50% of Brown Swiss had the B gene, but only 20% of Holsteins.    The E gene was recently discovered within a very popular Genomic ranking sire who has sold over one million straws of semen by seven years of age and had 250 sons (1000 grandsons) sampled in AI.     

Again, pooling milk onto a single milk tanker dilutes any possibility of enhancing cheese yield.    Milk produced from dry hay, pasture, seasonal baleage and dry grain rations will produce better cheese than milk produced from silage, oilseed proteins, straw and high-moisture grain TMRs. 

Can we perceive a future in which milk trucks do NOT “pool” milk with such different quality, but instead assist in keeping milk segregated until delivered to its point of highest and best use?   Can we tolerate politically a pricing system in which the “market” qualities of milk determines the price, instead of distributing the premiums from high quality milk to producers of lower product recovery milk (as the current Milk cooperative/ FMMO system forces)?

Consumer frustration

The debate over “raw” (activists call it “real”) milk’s desirability and the legal restrictions put in place to deny consumers the right of choice to follow their conscience in choosing to consume milk in its “Paleo” (natural, unprocessed) form for all the digestive and health benefits possible, has been a lightning rod for food activists.     They might buy “local” milk if available, but they are part of the market that has switched to “Soy” or “Almond” milk as a protest.    The prior dairy system that licensed “certified” dairies was lobbied out of existence by a partnership of national-scale milk handlers and their subservient milk cooperative suppliers.  

On-farm bottling

By definition, “certified” dairies were on-farm bottlers, because the certification was a farm-specific system.      Farm bottlers have a bad habit of finding ways to differentiate their milk in its promotion and labelling to emphasize comparative flaws of commercial jug milk: compare selling points between “organic” and all the other possible labels an on-farm bottler may use:

Certified organic   (no pesticides, herbicides or synthetic hormones used)

Compare to --

Glass bottles  (no dioxin bleed-through from plastic to milk)
Opaque plastic jugs   (no degradation of milk from UV lighting)
“Bottled the same day milked”  (enhanced shelf life, has not travelled 2000 miles)
Batch pasteurized    (digestive enzymes still intact)
Cream line milk    (never separated or homogenized)
Non GMO certified     (no feeds grown from GMO seeds, including carcinogens implied)
A2A2 certified    (all cows verified A2A2 by Genome test or by mating in pedigree after)
Grassfed (no grain) Cows    (better percentage of beneficial fats and proteins)
“Jersey Queen” (All-Jersey)     (higher calcium and phosphorus, consistent with Jersey milk)
“Golden Guernsey”     (higher carotene content, which adds the yellow fat color)

 

Where available, many of these packages are outselling generic “organic” milk because the specifics of the product benefit are relevant to the thinking of more sophisticated consumers.   A big part of this is the combination in thinking that “local” source food is also “fresh”.    The current Organic Valley and Horizon Dairy combines cannot make the same claim given their consolidated processing at locations at opposite ends of the country.   

In general, our milk cooperatives and our national level handlers are resisting any or all of the specialty labelling options, which consigns their labels to the basic generic commodity milk definition, and thus their farmers to a commodity milk price.     Is this product satisfying a dairy product consumer, and are the prices generated passing any profit back to the dairy farmer?

 

Produce to government standard or consumer desires?

Dairy can break out of its current miasma, and within it, traditional size farms well-managed can compete profitably, if we get out of the way and let the marketing of milk evolve along all the possible premium market niches.    Quit pooling milk, start redefining quality alongside an ability to produce a premium value product, let monetary rewards flow from the consumer instead of by fiat redistribution and government restriction and subsidy.     The need to qualify for an individual market would serve as a defacto “quota” system, more in line with what has worked in other industries without government imposition.   

In the meantime

Several years ago, the Sierra Club in Michigan polled farmers to determine what they could do to assist the ‘family farm” in surviving economically.     What came out of a lot of interviews was that farms of CAFO size had the potential to degrade the environment—all it took was failure of a manure lagoon during a wet season with excessive rain.

The combine of MSU ag engineering and Michigan Farm Bureau, assisted by MMPA and DFA did intense lobbying to prevent any actual enforcement of Federal CAFO guidelines.    The thought that a mega-dairy on limited acreage (for example, 500 cows on 40 acres, totally dependent on farming neighbors to recycle manure) could actually be an environmental time bomb was like a heresy to the “progressive dairy industry sector”.     Nothing changed.

Well, actually what did change was a recognition among monolithic monocultural dairymen that Michigan was the place to go—produce all the milk you want, no one was going to get in your way.     We added 100,000 cows, and the entire industry nearly collapsed in its inability to deal with that fast a growth in the milk supply.

The Sierra Club suggestion was elegant in its simplicity: if you want to put 5000 cows on 40 acres, you need a manure processing facility, the equivalent of a wastewater treatment plant as any village in Michigan with over 1500 residents already has.   Bring consistency in the rules between human populations and cow populations where density has been created.    On the other hand, if you are truly a dairy “farmer” (owning or controlling 3-4 acres per cow, which can utilize the manure produced from 3-4 acres of feed utilized per cow) the existing rules work and still apply and should continue to apply.     It was a simple question of, “what can soil biology handle”? and design to its unchangeable specifications.

Enforcing logical environmental rules which already exist could work to control the rate of future dairy expansion.    If you can’t pay for it, you are not as “efficient” as the experts say.    Match cows milked to dairy products consumed, produce products consumers want, and get paid for that collaboration.     Quit acting like we have the right to do what we want without consequences.     Put some restraints on greed and allow creativity to be rewarded.    Farming properly done is the solution to environmental degradation, and if we make friends with our consumers again, we can have that dialogue.      Otherwise, stay on this road and the climate change lobby will put animal agriculture out of business, if we do not bankrupt ourselves first by preserving infrastructure that no longer serves our interests.

 

Greg Palen

Retired dairyman
Current breeding consultant

March 14, 2020

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