Dairy Sector Consolidation, Scale, Automation and Factor Biased Technical Change: Working through “Get Big or Get Out”

Two trends: One is diverging trajectories for different dairy herd scale categories in the three Great Lakes states. Data in Table 2 presage the eventual exit of most operations with smaller herd sizes, stasis among most operations in the middle, and future expansion concentrated among larger operations. Those middle-tier farms may not be safe, however. While we cannot find evidence that Earl Butz, the controversial former Secretary of Agriculture under Richard Nixon and Gerald Ford, ever asserted, “Get big or get out”—a phrase indelibly linked to him—he held firmly to the belief that farms that were not growing would eventually exit. Possible constraints on expansion for dairy farms of all sizes vary by location and can take many forms, including limited access to feed and forage, constricted local processing capacity, and manure disposal challenges. All else equal, however, as unit costs decline with scale, medium-sized operations may be unable to generate cash flow or access the loans needed to expand and lower cost structures. The other trend is bias toward capital, rather than labor, in intended investments. To understand this tilt, some reflection on the investment environment is in order. One point, made previously by Sumner (2014) but still true as of writing, is that real capital costs are at historic lows, whereas all-inclusive labor costs have stagnated. Furthermore, production agriculture has become an increasingly technical field, requiring protracted human capital investments in skill development. Forming enduring employment connections with hired help interested in and well-positioned to acquire the requisite skills has been a continual source of woe for many operators.