|Rotz, Clarence - Al|
Submitted to: Experiment Station Bulletins
Publication Type: Experiment Station
Publication Acceptance Date: 9/1/1996
Publication Date: N/A
Citation: Interpretive Summary: Dairy production is the largest component of Michigan's agricultural industry, accounting for nearly one-quarter of the state's annual cash receipts from farming. Because of its importance to the economy, it is critical to assess periodically the structure and operation of dairying in the state. The Michigan dairy industry continues to face competitive challenges to its position of national prominence. As population centers ebb and flow, management practices progress and markets shift, the concept of regional competitiveness in the national market is continually redefined. Industry dynamics suggest that Michigan dairy operations seem to be facing a period of considerable financial uncertainty. For that reason, a study was undertaken at Michigan State University to provide information to the Michigan dairy industry on the economic soundness of alternative future dairy production systems. The project's initial phase was designed to develop a better understanding of the current situation of farm and non-farm financial structure, and family and farm cash flows in the Michigan dairy industry. This objective was accomplished by conducting a survey of Michigan dairy farms with the assistance of the Michigan Agricultural Statistics Service. This report provides valuable information to dairy producers, particularly those contemplating major changes in their operations in herd size, facility type or other management characteristics. Producers not considering major changes can use the information to compare financial and production performance.
Technical Abstract: The Michigan dairy industry faces critical challenges. Dairy producers are caught in a three-way squeeze between increasing environmental and consumer concerns, rapidly advancing technology and decreasing profit margins. Tactical and strategic adjustments are needed to improve efficiency, obtain financial sustainability and achieve compliance with changing regulations. Many such adjustments are underway. Herd size, production per cow and net farm income continue to increase, but a large proportion of the industry remains in financial difficulty and a large turnover in management is expected within the next 10 years. At the same time, Michigan's dairy industry is on the move; about 25 percent plan to expand their operations in the near future. This study shows that survival methods in the face of a shrinking margin have been to increase outputs by increasing herd size and/or increasing milk production per cow. The high debt-to-asset ratios, advanced age of the principle operators and lack of available capital that characterize many Michigan dairy farms rule out expansion as a method for remaining competitive in a substantial portion of the industry. To help ensure a healthy and prosperous Michigan dairy industry, expansion and modernization of dairy farms must be based upon careful analysis of the financial, production and environmental consequences. Such business adjustment should begin with careful consideration of current profitability, debt level, facilities, technology, land base and manure-handling capacity. As management changes, facilities are up graded and herds are expanded, efficiency must also improve to allow simultaneous decreases in the many high debt-to-asset ratios.