SIC 2026
FLUID MILK



This industry encompasses establishments primarily engaged in processing fluid milk, cream, and related products that included cottage cheese, yogurt (except frozen), and other cultured milk products.

NAICS Code(s)

311511 (Fluid Milk Manufacturing)

Industry Snapshot

The fluid milk industry is an important subsector of the nation's dairy business. Fluid milk producers are often huge, sophisticated, diversified operations with product lines crossing industry boundaries. They manufacture and market a mix of fluid milk products, cheeses, ice creams, butter, dairy ingredients, and sometimes extensive lines of nondairy products as well. In 2001 shipment values of milk products (except frozen) totaled $24.9 billion, reflecting minor but steady growth over the past five years.

The sale of milk in bulk containers for in-home use is a mature and stable business, but with little room for significant growth. However, the milk products industry is benefiting in the early 2000s from the increased popularity of specialty milks, including single-serving packaging and flavored milk. In 2002 teenagers' consumption of milk increased for the first time in six years. With a penetration level nearing 98 percent in U.S. homes, milk is looking to compete with soft drinks for the huge "on the-go" market.

Organization and Structure

The highly regionalized fluid milk industry started on the dairy farm—where the raw milk was produced—and extended out to processors and manufacturing plants owned by dairy farm cooperatives, general food processors, and even by supermarket chains marketing private label product lines. These processing plants made a variety of milk products destined for retail outlets, food service and institutional markets, and, to a lesser degree, other countries. Milk is an extremely perishable commodity, and supply and demand can fluctuate unpredictably, depending on such variables as the output of individual cows, weather conditions, and even road conditions met by tank trucks.

In the 1990s changes in the dairy industry transformed the complex relationships between cooperatives and processors. Dairy cooperatives traditionally helped to reduce the impact of such fluctuations on milk handlers by more efficiently coordinating supply arrangements and routing raw milk supplies not needed for fluid milk. Dairy cooperatives assisting the producers in price setting have in many cases taken over all stages of dairy operations, including herd management and milking; management of fluid milk supplies and surpluses; development of competitive new products; fluid milk processing; and the manufacture and marketing of a broad range of dairy products and ingredients.

Government pricing regulations were another means of insuring market stability. The government regulated milk pricing to farmers through Federal Milk Marketing Orders authorized by the Agricultural Marketing Act of 1937 or the Agricultural Act of 1949, which established the ongoing dairy price support program for areas where producers had agreed to abide by it. Supervised regionally by the U.S. Department of Agriculture (USDA), prices were established geographically and according to the milk supply, fat content, weight, and the end use of the milk. From its inception, the support price fluctuated according to market conditions. In addition to the federal pricing structure, almost one-third of milk producing states also regulated milk pricing to farmers.

Milk Processing. Cow milk is the principal source of America's fluid milk supply. It contains about 87 percent water and 13 percent solids, which are composed of solids-not-fat (SNF) and milk fat. Components of SNF are mostly protein (caseins and whey), lactose, and minerals important to human nutrition. An excellent source of calcium, phosphorous, and vitamins A and B-2, and a good source of vitamins B-1 and B-12, milk's nutritional components earned it the label of "most perfect food." It is, however, a poor source for iron, copper, manganese, nicotinic acid, and vitamins C and D. Since the 1920s most milk sold in the United States has been fortified with vitamin D.

Class I fluid milk meets strict standards, which include regular inspections of the herd and herd housing facilities, dairy equipment, and milk storage units to insure that they satisfy health and sanitation requirements. Class I milk is used for human consumption or in manufactured milk products. Milk of manufacturing grade does not meet such strict standards and is priced lower.

In most dairy operations, raw milk is piped from a milking machine to a refrigerated bulk storage tank before it is transferred to a tank truck for delivery to a plant. There it undergoes the following processing operations:

Fresh Milk. The following products are included in the fresh milk category: whole milk, lowfat milk, skim or nonfat milk, cream, half-and-half, and buttermilk.

Whole milk contains not less than 3.25 percent milk-fat and 8.25 percent solids-not-fat (SNF). Vitamins A and D may be added at levels of at least 2,000 International Units (IU) per quart for vitamin A and 400 IU for vitaminD. Flavoring ingredients may also be added.

Lowfat milk contains milkfat at levels of 0.5, 1.5, or 2 percent, not less than 8.25 percent SNF, and at least 2,000 IU of vitamin A per quart. If vitamin D is added, it must be present at a level of 400 IU per quart. Flavoring ingredients are also permitted.

Skim or nonfat milk contains less than 0.5 percent milkfat and not less than 8.25 percent SNF. It must contain 2,000 IU of vitamin A per quart. If vitamin D is added, it must be present at a level of 400 IU per quart. Flavoring ingredients are permitted.

Cream is made by separating out most of the skim milk and is rich in milkfat. Light (coffee) cream contains at least 18 percent and no more than 30 percent milk fat. Heavy (whipping) cream contains at least 36 percent milkfat. Half-and-half, a mixture of milk and cream, contains between 10.5 percent and 18 percent milkfat. It was often preferred over coffee cream for its lower fat and calorie content, as well as its lower cost.

Buttermilk is a by-product of churning cream into butter. Similar in composition to skim milk, it is condensed and dried for commercial use in baking and packaged cake mixes; it is not sold for consumption.

Cultured Milk Products. For centuries, people have known how to preserve the nutritional values of fresh milk for weeks or months by using bacterial cultures. Lactic acid-producing bacteria and certain characterizing ingredients may be added to fresh milk products and, depending on the level of milkfat, they may be labeled "cultured buttermilk," "cultured lowfat buttermilk," or "cultured skim milk (or nonfat) buttermilk." Yogurt, sour cream, dry curd cottage cheese, and cottage cheese are included in the cultured milk products category.

Yogurt is made by culturing a mixture of milk and cream with lactic acid-producing bacteria, Lactobacillus bulgaricus and Streptococcus thermophilus, and contains not less than 3.25 percent milkfat and 8.25 percent SNF. Often sweeteners, flavorings, and other ingredients are added. Lowfat yogurt contains no more than 2 percent milkfat, and nonfat yogurt contains less than 0.5 percent milkfat. Sour cream results from the addition of lactic acid-producing bacteria to pasteurized cream containing not less than 18 percent milkfat.

Dry curd cottage cheese is made by adding either lactic acid-producing bacteria or acidifiers to skim milk and/or reconstituted nonfat dry milk. Rennet and/or other enzymes may also be added to help curd formation. The soft, unripened cheese contains less than 0.5 percent milkfat and no more than 80 percent moisture. Cottage cheese is made by the addition of a creaming mixture to dry curd cottage cheese. It contains at least 4 percent milkfat and no more than 80 percent moisture. Lowfat cottage cheese contains 2 percent or less milkfat and no more than 82.5 percent moisture.

Background and Development

History. The first cows landed at the Jamestown Colony in North America in 1611, and 13 years later, in 1624, cows were brought to Plymouth Colony. At that time, dairying was a family affair, and it was not until urbanization that dairy farms were established to supply nearby cities. In the industry's infancy, a large number of small, local producers provided the milk for their immediate areas. With the introduction of milk preservation and sanitation methods it became possible for large dairy processors, often far removed from raw milk sources, to supply ever more distant markets.

A creamery built in Goshen, Connecticut, in 1810, was one of the first formal business units established as a cooperative venture. Cooperative cheese rings and dairy cooperatives in eastern states soon followed, and the movement spread to Wisconsin and other Midwestern states. It did not gain momentum, however, until after the Civil War, when the Grange and other farm organizations sponsored a number of experimental cooperatives. By 1900 there were approximately 1,000 farmer cooperatives. A period of dynamic growth occurred from 1915 to 1930, when cooperatives were placed under statute laws rather than common law. Passage of the Capper-Volstead Act in 1922 established the right of agricultural producers to band together in voluntary associations for mutual benefitin collective processing, handling, and marketing of agricultural products in interstate and foreign commerce.

Some milestones along the way include: Louis Pasteur's experiments using heat to kill microorganisms in milk (1856); Gail Borden's first successful milk condensery in Burrville, Connecticut (1857); development of the milk bottle by Dr. Hervey D. Thatcher of Potsdam, New York (1884); introduction of tuberculin testing for dairy herds and Dr. S. M. Babcock's perfection of a fat content test for milk and cream (1890); introduction of commercial pasteurizing machinery (1895); perfection of the automatic bottle filler and capper (1911); the first use of tank trucks for milk transport (1914); successful sale of homogenized milk in Torrington, Connecticut (1919); introduction of vitamin D-fortified milk (1932); perfection of a vacuum pasteurization process (1946); introduction of ultrahigh temperature (UHT) pasteurization (1948); the start of nutrition labeling for fluid milk products (1974); widespread acceptance of UHT milks (1981); increased popularity of low-fat and skim milk, with sales surpassing whole milk for the first time (1988); mandatory nutrition labeling under the Nutrition Labeling and Education Act (1991).

In 1991 nearly 10 million dairy cows were on cooperative farms or on the increasingly rare small and independent dairy farms in the United States. They yielded an annual average of 14,867 pounds of milk per cow, for a total of 148,526 million pounds. Breeding efficiency, the ability to improve the herds rapidly using artificial insemination techniques introduced in the 1940s, and the selection of superior sires brought milk production a long way from the mid-1800s, when cows produced an average of only 322 gallons annually.

Also, by 1991 fluid milk accounted for 39.3 percent of all dairy industry sales—$24.7 billion out of a total of $62.8 billion for the entire dairy industry. By the mid-1990s, however, per capita milk sales had experienced a decline of 15 percent since 1975.

Record-breaking floods and drenching rains left tens of thousands of acres in the Mississippi River Valley under water in the summer of 1993. Despite damage measured in tens of billions of dollars, it looked as if dairy farmers would be spared the worst of it. Minnesota farmers, for example, were unable to plant vast portions of acreage, but the cows responded to cooler-than-usual temperatures by giving more milk. A Land O'Lakes spokesman expected this to offset higher feed cost and increased risk of udder infections from the sloppy conditions.

Scandal in the Dairy Industry. Computerized bid-analysis techniques uncovered conspiracies in Florida in the mid-1980s, where the court said that illegal bid-rigging had raised the price of milk by as much as 14 percent. The U.S. Department of Justice and some other states began their own investigations, and by mid-1987 signs of illegal bid-rigging extended into Georgia, Alabama, and Mississippi. The dollars involved were considerable. According to the Milk Industry Foundation, from 1981 to 1991 a steady 7 percent of fluid milk sales had been to schools. By 1993 fines and settlements had come to more than $100 million.

Even as investigations and prosecutions proceeded, a report from the General Accounting Office (GAO) criticized the government for its share of responsibility for the schemes. Once bid-rigging had been discovered, said the GAO, the USDA had the authority to halt federal funding to companies found guilty of bid-rigging and to bar their future participation in the federally financed programs. Under federal marketing and price-support programs, moreover, dairies were aware of competitors' minimum prices, creating a situation that provided opportunities for collusion.

The USDA countered that debarment of private companies was inappropriate, if the companies paid the penalties imposed and satisfied the federal agency's requirements.

Controversy. Monopolistic practices and political contributions have been the main controversies attached to dairy co-ops. Consumer advocate Ralph Nader accused the three largest dairy co-ops—Associated Milk Producers, Inc. (AMPI); Dairymen, Inc.; and Mid-America Dairymen, Inc. (Mid-Am)—of illegal contributions totaling $422,000 to President Richard Nixon's reelection campaign in order to influence the administration to enact higher price supports (enacted in 1971) and to drop antitrust suits against the three co-ops.

Eventually, AMPI pleaded guilty to having made illegal contributions in 1968, 1970, and 1971. This, however, was not the end of AMPI's legal battles; in 1989 the U.S. Supreme Court upheld an appeals court ruling, filed in 1971 by the National Farmers' Organization (NFO), which determined that AMPI had conspired to eliminate competitive milk producers.

Meanwhile, after decades of backing the industry through price support programs and the purchase of surpluses, the federal government was gradually reducing its role, although no one was predicting the elimination of supports in the near future. As with many issues in the dairy industry, opinions were divided as to whether supports protected the dairy farmers or whether a free market would serve them better.

In the early 1990s, industry analysts forecasted that fluid milk sales were likely to drop between 1 and 1.5 percent annually. In 1992 sales declined in every major milk product except yogurt, which posted a 5.8 percent gain. The figures illustrated the trend reported by the Milk Industry Foundation (MIF), which said that from 1974 to 1991, total fluid milk product sales (plain whole milk, lowfat milk, skim milk, flavored milk and drinks, and buttermilk) had risen a scant 0.05 percent, from 52,476 million pounds to 55,227 pounds. Sales of whole milk had plummeted 43.7 percent in that period, from 36,765 million pounds to 20,680 pounds, while lowfat milk sales had jumped from 9,763 to 25,221 million pounds.

Consumers' health concerns about fat in their diets presented opportunities for the introduction of flavorful low-fat and skim milk products, and dairy companies were working to improve the taste of these products in order to compete with nondairy beverages like soft drinks, bottled waters, beer, juices, and sports drinks.

Per capita sales from 1974 to 1991 dropped 10.6 percent, from 245.9 pounds to 219.0 for all milk products, and from 172.3 to 82.0 for whole milk. During the same period, lowfat milk sales more than doubled, from 45.8 to 100.0 pounds per capita.

A report by Bozell Worldwide consultants detailed a 23 percent drop in per capita milk consumption reported for the 35 years from 1955 to 1990, and it noted a dramatic drop in milk drinking after age 17; at the time, 64 percent of the U.S. population was 25 or older. Still, nearly 95 percent of American households purchased milk, usually from supermarkets, where milk posted 1991 sales of nearly $6.8 billion and accounted for 31.06 percent of dairy case sales. It was the most frequently purchased supermarket item for the year ending March 1992, just ahead of bread.

Nevertheless, milk's image as the most perfect and nutritionally complete food was slipping. Studies linked it to diabetes and certain infant allergies. Consumers also expressed concern about the fat in milk, although a 1990 Pennsylvania State University study found that more than half of the survey's respondents didn't know the fat content of whole and skim milks, and 40 percent didn't know the fat content of lowfat milk. Even those who thought they knew milk's fat content tended to overstate it. A National Dairy Board study found that many Americans believed, erroneously, that reducing fat content also depleted milk's nutrients.

Facing slow sales growth and virtually no increase in consumption, fluid milk producers began to take aggressive steps to improve the industry's outlook. A combination of consumer education, advertising and promotion, and consumer-responsive new products was seen as imperative to restoring consumer demand for and confidence in fluid milk and fluid milk products.

In 1993 the Milk Industry Foundation (MIF) took steps to set up a fund for a $55-million national consumer education program, the only strategy on which the fragmented industry was likely to unite. The money was to come from an assessment on Class I fluid milk sales. Said Bill Tinklepaugh, MIF vice president, in Dairy Field magazine, "Although the 1990 Farm Bill authorized a national advertising program, here we are in 1992 still trying to build a coalition of support for any program. That's because milk processors have so many divergent points of view." Howard Dean, chairman and chief executive officer of Dean Foods Co. and 1991-92 MIF chairman, said in the same article, "We've never been able to get our act together and coordinate the industry."

As sales of fluid milk flattened out, and cottage cheese sales plunged in the 1980s, sales of cultured milk products increased. Yogurt sales soared by 88 percent—from 583 to 1,098 million pounds—from 1980 to 1991, and sour cream and dips jumped 61 percent, from 408 to 657 million pounds. Growing popularity of ethnic foods, especially Mexican, in the late 1980s and early 1990s, spurred growth in the $750-million sour cream and dip market. Combined sales of cultured products reached $4 billion in 1991.

In the last decade of the twentieth century, the industry appeared poised to tackle changes in the fluid milk market in united fashion and form a probable position of financial strength. A major development was the passage of the Federal Agricultural Improvement and Reform Act of 1996 (FAIR), which called for a phased elimination of government supports for dairy products. In 1996 the support price was $10.35 per hundred weight (cwt) level. This was expected to move to $9.90 by 1999. Price supports were to be eliminated altogether by 2000.

In 1996 Bovine Growth Hormone (BST) was in its second year, and the industry saw increasing rates of adoption. It was estimated that one-third of dairy cows received BST in 1996. Usage of hormonal injections was expected to increase steadily each year through the end of the decade, leveling off at 50 percent by 2002.

Milk prices were unusually high by mid-decade, due to rising production costs and weather-related feed grain shortages that drove up farmers' costs of feeding dairy cows. With the higher costs, milk production was down 1.16 billion pounds in 1996.

In an effort to counteract these trends by boosting consumption of milk, the industry introduced national advertising campaigns, such as the "milk mustache" series of ads that featured well-known athletes and celebrities. The industry also petitioned the Food & Drug Administration (FDA) to eliminate strict labeling standards for milk and other products. In late 1996 the FDA announced a new policy that would make labeling of dairy products consistent with that of other lowfat and nonfat foods. For example, under the new policy, 2 percent milk was to be renamed "reduced fat," 1 percent relabeled as "lowfat," and skim milk as "fat free" or "nonfat." The new rules were applauded by the International Dairy Foods Association as opening the way for the industry to formulate more lower-fat products.

In 1999 the Beverage Marketing Corporation (BMC) issued its first report on the overall conditions of the top nine beverages in the United States. The categories included beer, bottled water, fruit beverages, soft drinks, spirits and wine, coffee, tea, and milk. These beverages had an overall volume growth of 2.4 percent from 1997 to 1998. Milk was the only one of the nine with lower volume—.04 percent. However, milk was second in terms of wholesale dollars, with 16.8 percent, and second in per capita consumption, at 23.6 gallons, with soft drinks first in both categories.

With so many new products on the market in the beverage category, competition is fierce. The challenge is making consumers aware that milk has no more calories than a can of regular cola and is far more nutritious. Consumers tend to save milk for breakfast products, such as cereal. The per capita consumption rate is actually lower—closer to 20 gallons—when the milk used on cereal and in cooking is taken into account.

Milk is not something consumers buy or order with restaurant or take-out meals. Most people perceive eating out as a treat and tend to order "treat" drinks for themselves and their children, not milk. Consumers are very aware of how much milk they have in their house and how fresh it is. However, if running low on milk at dinnertime, most consumers will switch to something else, saving the milk for breakfast, instead of running to the store to buy more.

Milk production continues to rise. In the first three quarters of 1999, U.S. dairy farms produced 122.3 million pounds—up from 118.5 million pounds in the first three quarters of 1998, a 3.2 percent increase. There were 27.5 million milk cows, about the same as in 1998. The amount of milk per cow in the first three quarters of 1999 was 13,366 pounds, up 3.4 percent from the same time in 1998. The states with the largest production of milk in 1999 were California, Wisconsin, New York, Pennsylvania, and Minnesota. California, Indiana, Arizona, Florida, and Virginia recorded the greatest increases in production.

Government, both federal and local, has a heavy hand in the dairy industry. California enacted legislation in 1962 requiring lowfat milk sold in that state to have added calcium and protein. The regulations, which supporters said were needed to protect children's and older people's health, effectively prevented out-of-state producers from selling milk in the state. In 1999 a California state appeals court ruled the state could not fine out-of-state milk producers for selling milk in California that meets federal nutritional guidelines.

As part of the Farm Bill of 1996, the Northeast Interstate Dairy Compact (NIDC) was to have been a transitional system of dairy price supports to help dairy farmers in the northeastern United States. The NIDC was to have been phased out by April 1999, but Congress extended it until October of that year, while they tried to come to a consensus regarding milk pricing. The dairy compact (and new ones, if passed) provide a floor to milk prices and guarantee regionality of milk supplies. This leaves the heavily milk producing states of the Midwest with a smaller market to sell to. The compacts are limited to contiguous states. The USDA countered with a proposal to reduce the number of federal marketing orders from 31 to 11. The orders would still be responsible for setting milk prices.

Critics of the dairy compacts charge that they are a price-fixing scheme and eliminate all pretense of market forces in the industry. Some claim it would favor farms in the compact and encourage overproduction, thereby reducing milk prices for all producers. The International Dairy Foods Association has stated the continuation of the compacts would cost consumers and taxpayers (who support Women, Infant, and Children [WIC] programs) from $571 million to $1.64 billion.

The biggest problem to dairy reform is that the legislators themselves often don't understand the complexities of the industry. The U.S. senators from the upper Midwest oppose continuing the NIDC or creating new compacts, claiming that Wisconsin dairy farmers would lose $64 million in sales a year. Even a senator from Massachusetts, a beneficiary of the NIDC, opposes its continuation. The compact has resulted in higher prices to consumers to the tune of $74,000 per dairy farmer, yet on average the farmer in Massachusetts received only $3,000. The charge is that most of the money goes to large farms in Vermont to protect them from competition. The smaller farmer is being bought out by the larger ones; they are going out of business even faster—by 25 percent—than before the so-called protections.

Current Conditions

According to figures by Information Resources Inc., as reported by Dairy Field, total milk sales in traditional venues (supermarkets, drug stores, and discounters) totaled $10.9 billion for the 12 months from September 2001 to September 2002. Revenues from refrigerated skim milk led with sales nearing $6.8 billion. Although often aligned for its high fat content, whole milk still managed to generate $3.2 billion in sales. However, both skim and whole milk product sales reflected a year-on-year decline, with skim falling a fraction (0.2 percent) and whole falling 1.8 percent.

During the early 2000s, flavored milks became the talk of the industry. For the 12 months ending September 2002, sales of flavored milks (including eggnog and buttermilk) totaled $752 million, a 5.5 percent increase from the same period of the previous year. Chocolate remains the leading flavored milk, but the variety in offerings and package sizes has increased. Other new flavors that are challenging the well-established chocolate milks for shelf space include strawberry, banana, and coffee-infused milks.

The increasing popularity of flavored milks is the industry's answer to two of its weak marketing sectors: teenagers and out-of-the-house consumption. Teenagers consumed an average of 22 gallons of milk in 2001, a 3-percent gain from 2000 and the first such increase in six years. Yet milk'sinfiltration into the teen market still pales in comparison to soft drinks (an average teenager consumes 868 cans of soft drinks annually), which provides both a strong challenge and an untapped market for the milk industry.

New approaches to container packaging have also added new energy to the industry. Consumer demand for convenience is driving the market, and milk product manufacturers have responded with a widening range of single-serve offerings. Flavored and unflavored milk, cottage cheese, dairy-based dips, sour cream, cream cheese, and cheese snacks have all become available in single-serve packaging.

Industry Leaders

Dean Foods. The leading U.S. dairy producer with 2002 sales of $9 billion, Dean Foods has led the fluid milk industry since Borden, Inc. sold off their dairy segment. Dean's milk processing plants bought raw milk directly from farmers and processed it into skim milk, half-and-half, whipping cream, yogurt, sour cream, buttermilk, and cottage cheese. Typically, some 75 percent of plant output was marketed to supermarkets and other retail food outlets. The rest was supplied to restaurants, hotels, schools, hospitals, military installations, and fast food chains. Industrial sales accounted for a relatively small portion of Dean's business.

For decades the company's strategy had been growth through acquisition, a policy Dean planned to continue through the 1990s, as milk consumption flattened. Typically, Dean sought to purchase larger dairies with sales in the $25-million to $80-million range, often retaining their strong regional brand names. In 1993 the company entered into negotiations to purchase the Flav-O-Rich, Inc. fluid milk and ice cream business. Flav-O-Rich, which operated nine fluid milk plants in the southeastern United States, was the milk-processing subsidiary of Dairymen, Inc., one of the country's largest dairy cooperatives. Dean was also looking to Mexico for growth. With half of the country's population under 18, the prime age group for drinking milk, and a chronic shortage of fresh milk, Mexico was an attractive new market for expansion.

In the late 1990s and early 2001, Dean Foods continued its buying spree, acquiring Berkeley Farms and the Lucky Stores dairy operations in California. Dean now has farms and processing plants across the country. The strategy is to buy well-established family farms, with good brand recognition and a loyal customer base. Dean Foods also acquired farms in Alabama, Kentucky, and Ohio in 1999.

National Dairy Holdings LP. By 1998 the Dairy Farmers of America (DFA) was the largest dairy cooperative, with 20 percent of the nation's farmers as members. DFA produces about 32.5 million pounds of milk from 22,000 farmers in 42 states. Four cooperatives had joined DFA to make America's largest cooperative—Milk Marketing, Inc.; Mid-America Dairymen; Associated Milk Producers, Inc.; and Western Dairymen Cooperative. National Dairy Holdings is a partnership between the DFA and private investors.

Foremost Farms USA. Another cooperative-based venture, Foremost Farms USA is owned by approximately 4,300 dairy farmers who combine to churn out some 5 million pounds of dairy products annually. Fore-most Farms posted revenues of $1.2 billion in 2002.

Workforce

According to the U.S. Department of Labor, Bureau of Labor Statistics, the dairy products industry employed 144,410 in 2001. Production workers, which accounted for over 40 percent of all positions, earned a mean annual salary of $28,330.

Jobs in the dairy industry requiring a college degree included farm and processing plant management, quality control, and research. Training for herd management, milk production, processing, distribution, and sales could be obtained from secondary and vocational schools.

America and the World

NAFTA. The North American Free Trade Agreement (NAFTA) will do away with existing tariffs and other trade barriers among the United States, Canada, and Mexico until 2018, creating the world's largest consumer market with a combined economy of nearly $6.5 trillion. Negotiations for the agreement concluded in 1992, and the U.S. Congress passed the legislation late in 1993.

The International Dairy Foods Association predicted that the treaty would be an overall benefit to the U.S. dairy industry, including the fluid milk sector. With or without NAFTA, Mexico was seen as a potential growth area by the dairy industry. Mexico, which had been a major importer of dry milk and cheese products, had also increased its imports of such fresh dairy products as fluid milk and yogurt. The impact of the treaty on dairymen was likely to be less in Canadian trade.

The opportunities NAFTA would create for fluid milk products in Mexico in the 1990s also presented many challenges for U.S. companies. Only about one-half of Mexico's households had refrigerators. Moreover, Mexican consumers often bought food at small neighborhood stores, also with little refrigeration; even some of the better-equipped supermarkets turned off electricity overnight. Quality controls for dairy products in Mexico were also much less stringent than those in the United States. As much as 40 percent of Mexican-produced milk went straight from the cow to the consumer, without being pasteurized.

Europe. The introduction of milk quotas in 1984 to curtail surplus milk production under the European Commission's Common Agriculture Policy (CAP) had apparently backfired by the 1990s. Production efficiency was suffering and competition was down. The industry was becoming polarized, as large producers were growing in size, and smaller companies found it increasingly difficult to survive. Restrictive quotas also had an impact on available milk volumes in the domestic market. Processors, if strong enough, could purchase dairies in new markets to assure raw milk supply. Those unable to do this were threatened with takeover. Buying power, too, was becoming concentrated in a small number of powerful and aggressive retailing groups. The large, well-established international dairy suppliers were able to stand up to their demands, but smaller, national producers were at risk.

World Milk Production. There was very little international trade of fluid milk in the early 1990s. According to a National Dairy Board (NDB) market development plan for 1993, there was no change in the average rate of worldwide milk production from 1987 to 1991, but there was a significant drop in production in the former Soviet Union and Eastern Europe after the disintegration of Communist rule. Much of the NDB data was drawn from the Foreign Agricultural Service (FAS) Dairy Livestock and Poultry Division (DLP), so it does not include data from nonreporting countries.

The world's largest milk producer was the European Community, with an estimated production of 119.9 million tons in 1999. The former Soviet Union, which includes Russia and the Ukraine, was expected to have a decline in milk production for 1999 over 1998, as a census of milk cows in March showed the number of milk cows had declined by 7 percent. Australia and New Zealand combined to produce 21.3 million tons of milk in 1999, Mexico and Japan produced 8.5 million pounds, and Canada produced 8.3 million pounds. Worldwide, production rose about 1 percent from 1998 to 1999 to 386.5 million pounds. Long-range trends indicated that large, populous developing nations like Mexico, India, and China would increase production capabilities.

Research and Technology

Bovine Growth Hormone (BST). There was consternation and divided opinion among dairy farmers and processors in the late 1980s and early 1990s on how, and whether, they would make use of bovine somatotropin (BST), even though it had been found safe for human consumption by the National Institutes of Health. This genetically engineered version of a hormone that occurs naturally in cows increases milk production by as much as 15 percent. Marketed by its producer, Monsanto, under the trade name Posilac, proponents argue that milk from BST-treated cows is indistinguishable from those produced by ordinary cows. Critics, however, note that cows that have been treated with BST (or BGH-bovine growth hormone, as it is also known) are more likely to contract mastitis, an udder infection.

Approved by the FDA, the hormone was the subject of a labeling debate as well. If milk products produced from BST-treated cows were required to be labeled as such, it would open the door to similar requirements for other undisclosed substances in foods, such as pesticides and antibiotic residues.

Further Reading

"Appeals Court Overturns Calif. Milk Producer Ban." Nation's Restaurant News, 6 September 1999.

Berg, Bjorn. "Can Consolidation Lead to Distribution Efficiency?" Dairy Foods, April 2003, 52-53.

Clark, Gerry. "Border Wars: The Dairy Compact Concept is Poised to Either Realize a New Dawn or Face a Final Sunset." Dairy Foods, June 1999.

"Dairy-Amendment Supporters Rally for Compacts." Super-market News, 27 September 1999.

"Dairy Production and Trade Developments." Foreign Agriculture Service, July 1999. Available from http://www.fas.usda.gov .

"Dean Foods Company Profile." Dean Foods Company, 23 November 1999. Available from http://www.prnewswire.com .

"Dean Foods 1999 Annual Report." Dean Foods Company, 23 November 1999. Available from http://www.prnewswire.com .

Frank, Paula. "Ingredients on the Move." Dairy Field, November 2002, 37-39.

Juday, Dave. "Sour, Curdled, and Gross." National Review, 12 July 1999.

"Milk Production." National Agricultural Statistics Service, 14 October 1999. Available from http://www.usda.mannlib.cornell.edu .

"New BMC Report Surveys Drinkscape, Including Where Coffee, Tea, Milk Fit." Beverage World, 15 August 1999.

Petrak, Lynn. "Fluid Situation: Products and Promotions Drive a Re-Energized Milk Category." Dairy Field, November 2002, 1-4.

Quail, Jennifer. "Milk Not Flowing With Meals To Go." Supermarket News, 11 October 1999.

"State of the Industry." Dairy Field, August 2002, 22-23.

"Taste Appeal." Dairy Field, April 2002, 14.

Turcsik, Richard. "Got Milk, Need Space." Progressive Grocer, 1 January 2003, 49-52.

U.S. Department of Labor, Bureau of Labor Statistics. 2001 National Industry-Specific Occupational Employment and Wage Estimates. Available from http://www.bls.gov .

Vosburgh, Robert. "California Ruling May Cut Milk Prices in State." Supermarket News, 16 August 1999.



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