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Economy & Business
Mon January 14, 2013
With Golden Guernsey's Bankruptcy, Is Wisconsin Losing Its Dairy Dominance?
Many school systems in the Milwaukee area had to scramble last week to find a new milk supplier and 100 workers are looking for jobs after the sudden closure of the Golden Guernsey dairy plant. The 83-year-old milk producer went on to announce that it is filing for bankruptcy protection.
While dairy farmers around the country have faced challenging times in the last few decades, the closure of Golden Guernsey came as a shock to many dairy industry observers.
It also surprised Mark Stephenson, the director of dairy policy analysis at the University of Wisconsin in Madison.
He says the closure is significant in a variety of ways.
“Golden Guernsey has been a rather iconic label and, you know, the plant is one of the relatively few fluid plants that we have in the state,” he says.
But he doesn’t believe the closure representative of greater issues facing the dairy industry in Wisconsin.
“It is one plant among many, and I don’t think we should probably take it out of context…by suggesting that the one plant closure has a huge ripple effect and impact like it would in other parts of the country,” he says.
“Golden Guernsey has been a rather iconic label and, you know, the plant is one of the relatively few fluid plants that we have in the state." -Mark Stephenson, dairy policy analyst
While the dairy farms that supplied the Golden Guernsey plant are going to have to find a new processor, the demand for their product is still there from schools, retail stores and other food distributors. And that plant’s loss is the gain of other plants in the region, which will pick up the slack in volume production to supply Golden Guernsey’s distributors.
Of course, dairy farmers have fewer plants than ever before to go to for processing. Stephenson says the number of milk plants in the country dropped by a third in the last 15 to 16 years. In 1975, Stephenson says the U.S. had more than 2,500 fluid milk plants, where as today there are only about 300 to 400 fluid plants.
That's because consolidation has proven to be more economical - and profitable.
“A much larger plant can put milk in a bottle or a jug at a much lower cost than a small plant can, and we’ve seen a tremendous consolidation of fluid milk plants,” Stephenson says. “We still are processing more fluid milk than before even though the per capita number has declined, and this has meant that fewer plants have much larger volumes to process.”
But processing more at a single plant has its trade-offs. Plants not only have to bring milk in from farther away, but they will also have to distribute the finished product to retail stores, schools and districts over a larger distances as well.
"But obviously those economies of scale have justified this consolidation because that’s been happening for a long time," Stephenson says.
Consolidation is also economical given the country’s declining milk consumption. Last year, Americans dropped below consuming 20 gallons per capita, a low compared with high points of consumption in the 1960s.
Stephenson says that’s because there’s a lot more competition among beverages for stomach space.
“Milk seems like a staid and old product,” he says. “It’s still enjoyed by many, many people, but not enjoyed so much as a refreshing beverage like we used to think of it. We have a lot of other competitors in that space. So you know, milk has been ceding some of that ground.”
But he says the dairy industry has been in the process of remaking itself in a variety of different ways.
“If you look at the total dairy product consumption and that includes things like cheeses, very prevalent from this state’s production standpoint, our consumption is well up,” he says. “And in fact we have increased per capita consumption over the past 20 years.”
Cause for concern
The Golden Guernsey plant closing may not be cause for concern for the broader dairy industry, but Stephenson says there’s still plenty to worry about – namely, uncertainty surrounding the farm bill. At the end of last year, Stephenson says the country almost went off the “dairy cliff” as Congress debated whether to extend the current version of the farm bill or let old legislation come into play.
He says this extension only “pushed the problem down the road” until September of this year, when lawmakers will either have to extend current policy or pass a new farm bill.
“I think we would be better off when we pass a farm bill and we get another five years or so of policy in place,” he says, “and people will try to make their production decisions based on that to some extent. “