America’s Dairy Industry Facing Difficulties from Long-Running Structural Changes

Trade in the market for cow’s milk has always been severely constrained by our understanding of the underlying biology needed to create and protect dairy products, by demand limitations related to tolerance and health implications, and by the state of economic infrastructure. Being close to a complete food, the potential demand for dairy produce has never been in question. As ruminants make good use of land unsuitable for cultivation and as, in any case, humans had learned to husband ruminants for meat production, bovine milk has never been limited in availability. Throughout history, as indeed today, the question has always been in bringing potential supply to potential demand. The primary product’s perishability and bulk has required that produce be either consumed or transformed immediately, and so locally. Production and transformation require long-term capital investments that leave investors vulnerable to both market vagaries and counterparties during bargaining. The story of dairying, therefore, has revolved around innovations in science and in pertinent economic infrastructure as well as formal arrangements to protect against market and bargaining situations. Figure 1 illustrates this connection, in which many of the impediments to dairy expansion have arisen at the interface between supply and demand. Topical market and policy issues have through time generally reflected the importance of the interface. This is as true today as it was a century ago.