SIC 0241

This classification includes establishments primarily engaged in the production of cows' milk and other dairy products and in raising dairy heifer replacements. Such farms may process and bottle milk on the farm and sell at wholesale or retail. However, the processing and/or distribution of milk from a separate establishment not on the farm is classified in manufacturing or trade. Establishments primarily producing goats' milk are classified in SIC 0214: Sheep and Goats.

NAICS Code(s)

112111 (Beef Cattle Ranching and Farming)

112120 (Dairy Cattle and Milk Production)

Industry Snapshot

Dairy farming is one of the leading agricultural activities in the United States, with dairy cash receipts totaling $20.5 billion in 2002. Because of scientific advances increasing milk production, the total number of dairy cows in the United States has been declining steadily since 1970, whereas the total output per cow has increased significantly. The overall number of dairy farms was 97,560 in 2001, down from 123,700 in 1997. Despite the 21 percent decline in milk cow operations, milk production increased 6 percent, from 156,001 million pounds in 1997 to 165,336 million pounds in 2001.

The dairy farm industry has been undergoing some significant changes during the early twenty-first century, caused by changing government regulations regarding milk subsidies and environmental management, geographical shifts in dairy farm populations, increased herd size, and increased milk production per cow. Despite setbacks during the 1990s caused by foot-and-mouth disease and mad cow disease that shook the entire cattle industry, milk products have become an increasing part of the American diet. In 2000 dairy products accounted for 9.08 percent of food dollars, up from 6.65 percent in 1995.

Organization and Structure

Number and Size of Farms. Every state in the country has dairy farms; however, warmer climates are not generally suited to efficient year-round milk production. Basically, about 88 percent of milk produced in the United States is produced in the 22 states considered to be the nation's Dairy Belt. The Dairy Belt is in the northern region, extending from New York to Minnesota, though California is the largest milk-producing state in the country. Wisconsin, a Dairy Belt state, is the second largest dairy-producing state. Wisconsin led in dairy production for many years, earning the state the title "The Dairy State," but California surpassed it in total dairy production in 1994 and has held the lead ever since. For 1997 and 1998, California produced 7.1 billion pounds of milk during the April-June quarter (the season of highest milk production), while Wisconsin produced 5.8 billion. Other leading dairy states are New York, Pennsylvania, and Minnesota.

Since the 1950s, the number of farms has decreased 50 percent, and the number of farms with dairy cows has decreased almost 90 percent. This is due to the shift toward larger scale, industrial dairy farms. A farm with 100 milking cows was considered big in 1950, while farms with 5,000 milking cows were becoming the norm toward the end of the twentieth century.

As recently as 1987, more than 70 percent of the American dairy farms had fewer than 72 cows, but this large segment of the dairy farmer population produced only about 37 percent of milk sold. However, in the mid to late 1990s the U.S. Department of Agriculture (USDA) reported that larger farms of 100 or more head accounted for 68.4 percent of the country's total dairy herd. In the South and the West, dairy farms of 500 head or more are increasing. Dairy farming in the nation's Dairy Belt in the north is also headed toward larger, mass-production enterprises, although at present smaller herds still predominate this area. Yet larger dairy farms are able to take advantage of the advances in technology, including fully automated milking parlors, computerized feeding systems, and genetically engineered drugs and hormones, allowing these farms to produce even more milk per head and weakening the ability of small- and medium-sized farms to compete. Many small- and medium-sized farms sell their milk to member-owned dairy cooperatives that process and distribute the milk and other dairy products.

Marketing Orders. For purposes of administration of the government milk subsidy program, dairy farmers in much of the country are part of marketing orders, which are geographic zones set up by the government during the Depression to regulate milk pricing. Farmers voted to form these orders, and the government set the minimum prices for each order that bottlers and other milk processors had to pay. Not all areas chose to be part of this system, but as of 1994, 38 orders regulated about 70 percent of U.S. milk production.

Dairy Farming Regulations. State and local laws regulate conditions under which milk is produced, collected, and processed because it is so easily contaminated. Most milk is sold as Grade A, when dairy farms meet strict sanitation standards. Milking machine equipment must be washed and sanitized, and the milk house and milking parlor floors must be kept clean. Farmers must also test their cattle for disease periodically, vaccinate all calves against the disease brucellosis, which affects humans, and remove sick cows from the herd. On the other hand, milk that fails to meet these standards is sold as Grade B.

Background and Development

Dairy cows have been an important part of life in America since the first English settlers arrived in Jamestown in the early 1600s. Cattle continued to move west with the settlers. Each family kept two or more cows with their "dry" times staggered, so that they would have milk year round.

As towns grew, farmers kept more animals and sold any surplus milk they had. Because milk was highly perishable, farmers could not live very far away from consumers. In the mid-1800s, as the big cities expanded, farms became further removed from consumers, and transportation of milk before it spoiled became a problem. But as more and more railroad lines were built, milk could be transported by train as far as 50 miles. Sanitation and refrigeration were a problem though, and it wasn't until they were dealt with that dairy farming could become a major industry.

Pasteurization, developed by Louis Pasteur in France in the 1860s, kept milk safe longer and enabled milk to be shipped farther. However, this process was not widely used in the United States until the early 1900s. Further development of refrigerated transportation and methods to retard spoilage also contributed to the growth of dairy farming.

The five most important dairy breeds in the United States in the late 1990s were Holstein, Jersey, Ayrshire, Brown Swiss, and Milking Shorthorn. Each breed has a different strength, either in quantity of production, composition of its milk, or suitability to a region's conditions. Eighty-five percent of dairy cattle in the United States are Holsteins, which produce large quantities of milk. Jerseys produce the milk richest in butterfat and protein, and they also tolerate heat better than other breeds.

During the period of 1996-1998, U.S. dairy farmers had an annual production rate of almost 72 million metric tons of milk. Throughout the 1990s the U.S. milk cow inventory steadily shrank, but milk production per cow increased. The number of dairy cows in 1998 was estimated to be 9.2 million head. In 1997 the number was about 9.3 million. In the period between 1993 and 1997, the average was about 9.5 million. Dairy products that come from milk include butter, cheese, ice cream, sherbet, frozen yogurt, and dry milk.

The United States was the largest producer of milk in 1999, with 72.6 million metric tons. India, with 36 million metric tons was a distant second, yet it produced its volume with more cows than the United States. This disparity in milk per cow stems from the ability of U.S. cows to yield 7.3 kilograms of milk per cow, while India's cows only averaged 1.9 kilograms per cow. Industry analysts predicted that the trend of larger dairy farms with fewer cows would persist, followed by a concentration of dairy processing as well.

The 1996 Federal Agriculture Reform and Improvement Act (FAIR) addressed a lot of concerns that had been brewing over the decades about milk price regulation, price supports, and market orders. For years, critics had demanded changes in these dairy-management policies. FAIR called for the elimination of the milk price support program that took effect in 2000. The price support amount was scheduled to decrease from $10.35 to $9.90 over the period leading up to 2000. After that, the subsidy will become a recourse loan—an inventory loan from the government—for processors who have butter or cheese in storage. The government hoped this move would get rid of the floor on dairy products.

The 1996 Farm Act also nixed the fee assessed for maintaining the price-support program. Dairy farmers welcomed this change because, under the 1990 Farm Bill, they had to pay $.11 per hundredweight. Though not fully articulated within FAIR, the milk marketing order system has undergone modification as well. FAIR mandated the reduction of the current 33 orders to just 10 to 14. In addition, the Agricultural Marketing Service (AMS) and the USDA have three years to develop and put into action a reformed milk marketing order system, which among other things, will include a replacement formula for the old Minnesota-Wisconsin Price Series, where the standard for milk prices was based on the cost for producing Grade B milk in these two states. With the elimination of the price support program, analysts believe exports could rise, because the support program kept U.S. prices well above competitors' prices. Furthermore, the 1996 Farm Act allowed The National Dairy Promotion and Research Board to use check-off revenue for international marketing. FAIR also strengthened The Dairy Export Incentive Program (DEIP) and called for the establishment of a dairy export trading company. Making the United States a more viable contender in the world dairy market, legislators hope, will lubricate the transition from price support to market dependence.

However, the government continued to set minimum prices for milk, based on the farm's distance from Eau Claire, Wisconsin, which is in the heart of dairy country. Theoretically, the price was based on how much shipping milk from Eau Claire would cost if supplies were not available locally. Milk for drinking was worth between one and two cents more per gallon for every 100 miles from Eau Claire. Under this policy, farmers in Texas were paid more for milk than Wisconsin dairy farmers. And processors had to pay at minimum a regional price set by government guidelines. Milk has been the only commodity for which the agriculture secretary can dictate the minimum price to be paid a farmer.

The complicated system, which requires 500 Department of Agriculture employees to administer and takes up three volumes of the Code of Federal Regulations, was instituted in the 1930s, before refrigerated transportation was widely available. The South had often faced milk shortages because milk was perishable in the heat, and raising cows in that climate was very expensive. Southern farmers were paid a bonus as an incentive to expand. However, technology today reduces the cost of shipping milk from surplus states, such as Wisconsin, to distant destinations. Technology has also developed new options for shipping milk. For example, in the 1970s scientists devised a way to remove water from milk to make it less expensive to ship. But the federal rules made reconstituted milk more expensive than local milk, so this technology has not been pursued.

The Eau Claire rule led to an increase of dairy farming in warm regions, even though they were not efficient places to run dairy farms. While many Midwestern farmers claim they are hurt by the regulations, farmers from many other regions support the Eau Claire rule, since they fear that revocation of that rule would result in the shipment of Wisconsin milk across the country, driving thousands of dairy farmers out of business. Southern farmers especially oppose deregulation, claiming they could not afford to remain in business without price supports.

Current Conditions

Dairy farms, as well as dairy cow milk production, continue to increase in size. In 2001, 35 percent of total milk cow inventory was on operations of more than 500 head, which produced 39 percent of all milk. In 1997 just 24 percent of milk cow inventory was on 500-plus head farms, which produced 29 percent of all milk. Dairy farms smaller than 500 head accounted for 65 percent of milk cows and 61 percent of milk in 2001, down from 76 percent of milk cow inventory and 65 percent of all milk in 1997. During the period from 1997 to 2001, operations of over 500 head grew by 20 percent, from 2,336 to 2,795 operations. On the other hand, dairy farms of under 500 head have decreased by 22 percent, from 121,364 to 94,765 operations. The biggest dairy operations—those with over 2,000 head—totaled just 325 farms, but produced 21 billion pounds of milk annually, compared to approximately 10 billion pounds produced by all 27,000 dairy farms of under 50 head.

The shift to larger operations has also increased the average milk production per cow, as large farms tend to be more efficient, thus producing a greater percentage of milk. In 2001 the yearly average milk production per cow on operations of more than 500 head was 20,446 pounds, compared to 16,919 pounds per cow annually on operations of less than 500 head.

Geographically, milk farm operations continue to grow in the western region of the United States and shrink in the southeastern and Midwestern regions. From 1997 to 2001, California, Idaho, and New Mexico showed the greatest increases, and Texas, Missouri, and Minnesota showed the greatest declines. California and Wisconsin remain the leading producers of milk. In 2001 California had an inventory of 1.59 million milk cows and cash receipts of $4.6 billion, and Wisconsin had an inventory of 1.29 million milk cows and cash receipts of $3.2 billion.

In April 2003 milk prices were at a 25-year low, caused by an oversupply of milk in the marketplace and a reduction in government subsidies. The National Milk Producers Federation outlined a voluntary plan to reduce milk marketing and decrease herd sizes to tighten milk supplies. Although the milk industry is expected to remain relatively flat during the early 2000s, dairy farmers are more concerned about the impact of new Environmental Protection Agency (EPA) regulations regarding dairy waste management systems. New requirements for managing waste must by met by 2006, and the cost of implementation has been estimated to be between $5 billion and $10 billion by the deadline.

Industry Leaders

In 1998 Progressive Dairies, located in Bakersfield, California, was the nation's largest single dairying business, with a herd of 18,500 located in California, Texas, and Georgia. Horizon Organic Dairy is the nation's top seller of organic milk.


Dairy farmers and workers put in long hours with few days off, since the cows must be milked twice a day every day. Farmers must also keep the barns and pens cleared out, clean milking equipment, and keep track of each cow's food consumption and milk production. Most dairy farmers also plant crops to provide feed for their cattle in the winter. Many smaller dairy farms have been in the same family for a few generations, but very few new family farms have been started in recent years because the costs of land, equipment, and a dairy herd are prohibitive. But the increase in larger dairies is changing the landscape of dairy-related employment. On a large dairy farm in Oklahoma, Braum's Dairy Farm, employees earn $8 to $9 per hour, working in six-day intervals punctuated by two days off. The dairy also provides benefits and a savings plan. However, such wages and amenities are not feasible for smaller farms.

Because of their increasing size, the larger dairy farms don't depend as heavily on human labor as they once did. A large portion of the tasks associated with dairy farming are automated, even the milking of cows.

Research and Technology

Computers. Many farms have joined the computer age, enabling farmers to keep track of food consumption and milk production to better manage their herds and their finances. Computerized systems also allowed farmers to design better feeding programs for their herds. Computer controlled trolley systems allowed some dairy farmers to deliver just the right food mix to each individual cow, based on the cow's current milk production, age, weight, overall health and its stage in the lactation cycle. A personal computer in the farmer's home is linked with a programmable controller in the barn. Boards in the controller correspond with the various mechanical hardware in the barn. The correct amount of feed, with the correct ratios of forage (corn and hay), grain, soybean meal, and minerals, is measured out for each cow. This computerized system can make the daily adjustments necessary, as a cow's needs change daily based on its milk-producing cycle. The system then delivers the custom-mixed feed to the appropriate cow. Before this system was developed, farmers had no easy way to custom-design a diet for each cow and deliver that diet as much as three times a day. Computers also allow farmers to keep track of milk production as well.

Artificial Hormones. While America had more milk than it needed, the budding biotechnology industry was producing a hormone that could increase milk production as much as 25 percent, which drove down dairy prices. Bovine somatotropin (BST), a natural protein found in cattle, has been artificially produced in pharmaceutical labs. Farmers remained skeptical about its use: would it drive down prices by producing a glut of milk? Would consumers believe milk was tainted if it had artificial BST? Companies producing the artificial protein said BST was present in all milk, and milk from cows treated with laboratory BST did not have any higher BST content than milk from untreated cows.

Dairy farmers were in a difficult position: they had already learned to increase milk production through better feed and breeding methods, but BST promised to further increase milk production with even smaller herds. Farmers feared that use of the hormone would produce a vast surplus of milk that would bring prices down. Still, the USDA had predicted that 60 percent of dairy cows would be given the hormone by the year 2000. Farmers were not as enthusiastic about the hormone as the pharmaceutical companies, but farmers who wanted to stay competitive would have to give BST to their herds.

Further Reading

Cryan, Roger. U.S. Dairy: Market and Outlooks, August 2002. Produced for Dairy Management Inc. by the National Milk Producers Federation. Available from .

"Dawning of Designer Milk Age." Dairy Farmer, 23 January 2003, 3.

"Milk Fact." National Milk Producers Federation. Available from .

Petrak, Lynn. "Fluid Situation." Dairy Field, November 2002, 1-4.

"Report: Number of U.S. Dairy Farms Falls 5.1 Percent." National Farm Bureau. 27 October 2000. Available from .

"Shelf-Stable Milk Makes Appearance." MMR, 28 January 2002, 22.

Smith, Rod. "Dairy Group Considers Cow Buyout: Beef Cutout Sets News Record High." Feedstuffs, 14 April 2003, 1-2.

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

U.S. Department of Agriculture. National Agricultural Statistic Service. Dairy Products, 4 April 2003. Available from .

——. Milk Production, 17 April 2003. Available from .

——. Milk Production, Disposition, and Income: 2002 Summary, 17 April 2003. Available from .

——. U.S. Dairy Herd Structure. 26 September 2002. Available from .

"U.S. Ups Size." Dairy Farmer, 9 August 2002, 12.

"Where Now Brown Cow?" Mother Earth News, February-March 2002, 20.

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