Dairy industry Summary

  • Last updated on November 10, 2022

Because of the importance of milk products in American diets, the dairy industry occupies a special place in the national economy. Since the mid-nineteenth century, the government has played a growing role in policing and supporting the industry, which has been largely removed from the dynamics of normal market forces. At the same time, government price supports of the industry have placed a growing burden on taxpayers that has become increasingly controversial.

Milk products have been important nutritional staples of human diets for thousands of years. As early as 9000 b.c.e., human societies domesticated cattle, which are one of the principal sources of milk products consumed by humans. Cattle were not bred in the Western Hemisphere until after Europeans began settling the Americas. The Italian explorer Christopher Columbus introduced cattle to the Caribbean islands during his second voyage to the Americas in 1493. In North America, cattle were brought over by British settlers at Jamestown in 1611 and at Plymouth colony in 1624.Dairy industry

The early years of European settlement in North America found most colonists living in small towns or on rural farms. Small dairy farms supplied the needs of towns, and many individual families owned their own dairy cows. After the colonies became independent to form the United States, urban centers grew in size, and the new nation needed more efficient methods to increase food supplies and improve distribution of agricultural and dairy products. The American Industrial Revolution of the nineteenth century changed the social and economic fabric of the country and advanced centralized and industrialized methods of food production. As new factories and mills were built, increasing numbers of people worked in large cities. By the mid-nineteenth century, large numbers of cattle were raised specifically for dairy production. As urban demand for milk and dairy products increased, small, family-owned dairy farms that had been the main sources of commercially supplied milk, were replaced by large dairy enterprises that functioned much like factories.

Industrialization and Research

Although American dairy farms were increasingly operated as large businesses, the dairy herds supplying milk were still based in rural areas that provided the space for cattle to be raised and fed. Many dairy herds were considerable distances from cities. Because milk and dairy products are highly perishable commodities, reliable methods to preserve and transport milk and dairy foods over long distances were needed.

Through the nineteenth century, as the dairy industry became more complex, new demands arose for standardizing milk and dairy foods and agricultural produce to make them safe for humans to consume. In response to these demands, the federal government created the U.S. Department of Agriculture, U.S. Department ofAgriculture (USDA) in 1862 to regulate farming methods and establish research centers. In 1895, the department added the Dairy Division and the Division of Agrostology, which studied grass feed and its effect on the flavor, odor, and quality of milk. Meanwhile, ongoing agricultural research, in the United States and elsewhere, led to improved breeding and feed methods that substantially increased the milk production of dairy cows. Tests developed by Nicklaus Gerber in Switzerland in 1888 and Stephen M. Babcock of the University of Wisconsin in 1890 established the fat percentages of milk and led to changes in price structures of milk products.

Cheeses have been made from cattle and goat milk products for millennia, but the first American cheese factory came into existence in the United States only in 1851, in Rome, New York, a small town northwest of Utica. Other advances in the manufacture of milk products soon followed. In 1856, for example, the first dried and condensed milks were developed and patented. In 1878, a process to separate cream from milk was developed. Milk bottles were invented in 1884, and tuberculin testing of all dairy cows, to prevent the spread of tuberculosis, began in 1890.

The Mehring milking machine, which was developed during the 1890’s, made it possible to extract milk from cows more efficiently and to reduce milk contamination. Around this same time period, the French microbiologist Louis Pasteur, LouisPasteur Pasteurizationdiscovered that microscopic germs were the causes of many diseases and invented the technique using heat to sterilize milk partially to kill possible disease germs and to make it easier to preserve the milk. That technique, which was soon adopted by virtually all industrialized dairy farms, came to be known as “pasteurization” after its discoverer. Indeed, in 1895 the pasteurization of milk became a public health mandate after commercial pasteurizing machines became available. The first pasteurization law in the United States was implemented in 1908 in Chicago.

Meanwhile, methods of transporting milk products to markets were advancing. In 1841, the first regular shipments of milk by railcar began. By the second decade of the twentieth century, refrigerated tanker trucks were being used to carry milk. At the same time, continued innovations in breeding methods substantially increased milk production. Packaging methods were also improving, using vacuum and ultra-high-temperature pasteurization techniques. Refrigerated transportation and automatic bottling machines permitted distribution of fresh milk and dairy products to all regions of the United States and to other countries.

By the mid-1920’s, the United States had 21.5 million dairy cows that each produced an average of 4,218 pounds of milk per year. By 2007, the number of dairy cows had dropped to only 9.1 million, but their average milk production was more than 20,000 pounds of milk per year (a gallon of milk is about 8 pounds).

Government Price Supports

In 1922, passage of the federal Capper-Volstead Act of 1922Capper-Volstead Act allowed dairy farmers for the first time legally to combine small, family-owned dairy farms into cooperatives that marketed fluid milk and protected their pricing structure. However, the industry was soon set back by new challenges. The stock market crash of 1929 was followed by the Great Depression, which was aggravated by drought conditions in the Midwest. Market milk pricing fell so low that many dairy farmers were in danger of losing their farms. Federal intervention became necessary to sustain the dairy industry through these difficult times.

Originally designed as a temporary measure, the federal government’s Agricultural Adjustment Act of 1933Agricultural Adjustment Act of 1933 provided economic relief to all U.S. farmers, including dairy farmers. Under the new law, the federal government set a uniform minimum milk price for raw milk. This price was paid to dairy farmers by dairy processors in ten U.S. regions, regardless of actual cost variations among the regions. In 1935, the federal government continued to support the dairy industry by purchasing milk and dairy products that were not sold on the open market. In later years, these surplus milk and dairy products would be used to feed financially needy Americans enrolled through the National School Lunch ProgramNational School Lunch Program (1946), the Food Stamp Program (1961), and the School Breakfast Program (1966). Large amounts of the surplus products were also given to impoverished countries.

The Agricultural Act of 1949Agricultural Act of 1949 mandated permanent federal support of dairy farms through uniform pricing programs for raw milk mainly to promote exports and improve environmental quality. These price supports have continued in the twenty-first century. Farm subsidiesThe intent of federal price support programs was to support milk prices at levels that would maintain adequate supplies for American consumers while guaranteeing income levels to dairy farmers that would encourage them to continue production, so as to ensure future supplies. The federal law forbade independent dairies from supplying milk at lower prices than the government-set prices, and producers operating in lower-cost regions were not allowed to pass along price savings to higher-cost regions. The law also prohibited the importation of raw milk from other countries.

State milk price controls also began around the same time as the federal controls. These programs have operated essentially the same as the federal program. California is an example of a state that uses state milk price controls to establish raw milk prices. Federal and state agencies work together to establish the minimum prices paid to farmers for four tiers of raw Grade A milk based on weight and fat content. These tiers include the following:

Class I (fluid milk)

Class II (ice cream and soft products)

Class III (cheeses)

Class IV (butterfat and dairy powder)

Under the market order pricing system, dairy farmers are paid for raw milk in two parts–they are paid for the class value of the raw milk sold and given a price differential for the difference in value of the milk on the open market. A differential price adjustment is made for raw milk used in the other classes of raw milk use and a location differential is added to represent the manufacturing value of the milk in the state it is produced in. Dairy cooperatives are allowed to negotiate higher prices.

Computerized milking allows two employees to milk about 160 cows per hour at this Cleveland, Minnesota, farm.

(AP/Wide World Photos)

The 1980’s brought the implementation of the federal government’s Dairy Export Incentive ProgramDairy Export Incentive Program (DEIP), which provided subsidies for dairy product exports. However, dairy price supports and import prohibitions distort market economics and insulate the dairy industry from market forces. As a result, American taxpayers are increasingly burdened and consumers pay much higher prices for milk and dairy products than they would if market forces alone prevailed.

Growing frustration with the dairy support programs led to the Federal Agriculture Improvement and Reform Act of 1996Federal Agriculture Improvement and Reform Act (FAIR Act), also called the Freedom-to-Farm Act, in 1996. The FAIR Act phased out dairy price supports, along with other commodity crops, gradually reducing payments until all federal pricing payments were intended to end in 1999. However, the dairy support program was extended as emergency assistance to the end of 2000, and then extended again until 2001 because of low market prices affecting dairy farmers. The Farm Security and Rural Investment Act of 2002Farm Security and Rural Investment (FSRI) Act of 2002 continued to extend dairy price supports through 2007, after which Congress continued to debate the continuation of federal subsidy programs.

Twenty-first Century Policy

In 2007, American dairy farms produced 186 billion pounds of raw milk. The continued Dairy Price Support ProgramDairy Price Support Program (DPSP) and Milk Income Loss ContractMilk Income Loss Contract (MILC) program continued to subsidize dairy farmers and maintain low raw milk prices on the open market. The federal government also continued to restrict foreign imports of milk, but the United States has remained among world leaders in its exports of dry milk to other countries. In 2007, Russia led the world in milk production, with about 22 percent of total world production, followed by the United States at 17.5 percent. Other major milk-producing nations include France, Germany, Poland, Great Britain, Italy, and Canada.

Controversy continues to surround the continued dairy farm economic supports. Research studies show that U.S. consumers pay more for their milk and dairy products than other countries with open market pricing. During the early twenty-first century, Americans have tended to buy less milk because of high retail prices and their increased use of milk substitutes, such as soy milk. At the same time, cheese consumption in the United States has continued to rise. However, cheese prices are affected by raw milk prices, so cheese consumption could yet decline.

Another twenty-first century change in the landscape of the dairy industry has been increased consumer demand for milk products free of pesticides and the hormones and drugs used to increase dairy production in cows. The production of organic milk and dairy products has also changed. Organic milk and dairy products are mainly produced by dairy cooperatives, but these small farms are struggling financially because of increased farming costs and raw milk price restrictions. Continued subsidization of dairy farms removes farmers from supply-and-demand market forces in the economy, ultimately creating a drain on taxpayers and a negative impact on the national economy and foreign exports.

Further Reading
  • Apps, Jerry. Cheese: The Making of a Wisconsin Tradition. Amherst, Wis.: Amherst Press, 1998. Folksy history of the cheese industry in Wisconsin from the early 1940’s through the end of the twentieth century, when Wisconsin was the leading producer of cheese among American states.
  • Bailey, Kenneth W. Marketing and Pricing of Milk and Dairy Products in the United States. Ames: Iowa State University Press, 1997. Useful survey of all aspects of marketing dairy products of all types, with attention to dairy cooperatives, federal milk marketing orders, price supports, and international trade.
  • Dupuis, E. Melanie. Nature’s Perfect Food: How Milk Became America’s Drink. New York: New York University Press, 2002. Lively and authoritative study that provides a balanced history of American milk production and consumption that considers changing public perceptions of the benefits of drinking milk.
  • Fuquay, John W., Patrick F. Fox, and Hubert Roginski, eds. Encyclopedia of Dairy Sciences. 4 vols. New York: Academic Press, 2002. Perhaps the single-most comprehensive reference source available on the dairy industry, this 2,500-page work addresses almost every imaginable topic in the field. Includes an article by Daniel A. Sumner and Joseph V. Balagtas titled “United States’ Agricultural Systems: An Overview of U.S. Dairy Policy.”
  • Schwarzweller, Harry K., and Andrew P. Davidson, eds. Dairy Industry Restructuring. New York: JAI Press, 2000. Collection of articles examining the special problems of the dairy industries of Western nations including the United States. Among the problems considered are changing technologies, withdrawals of government price supports, globalization of markets, and impact of food processing industries.
  • Turkey Hill Dairy. Turkey Hill: A Family Vision. Lincoln: Schiffer Publishing, 2006. Brief but entertaining and informative history of a small Pennsylvania dairy’s growth from a family farm to a major manufacturer of ice cream and refrigerated teas. Includes many details on how dairies operate.



U.S. Department of Agriculture

Beef industry

Farm subsidies

Food and Drug Administration

Food-processing industries

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