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Dairy farmer Mike Kiechle of Philadelphia, NY, spreads manure from his tractor. He's the kind of small farmer the new rules are trying to target, but he says he doubts he'll grow his herd bigger. Photo: David Sommerstein
Dairy farmer Mike Kiechle of Philadelphia, NY, spreads manure from his tractor. He's the kind of small farmer the new rules are trying to target, but he says he doubts he'll grow his herd bigger. Photo: David Sommerstein

Will the Greek yogurt boom help dairy farmers?

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Last week, the U.S. Department of Agriculture announced New York will be one of four states in a test program to include Greek yogurt in school lunches.

State officials praised the news - as a new way to induce kids to eat their protein, and as a way to continue to fuel the Greek yogurt boom for New York dairy farmers.

New York has invested millions of dollars in tax breaks into new and expanding yogurt plants. Governor Andrew Cuomo eased environmental rules to encourage 200 cow dairy farms to become 300 cow dairy farms and make more milk.

Experts say New York farmers will have to boost milk production by 15%, or 2 billion pounds each year, to keep up with demand.

So does New York have a milk shortage? And are farmers stepping up it fill it?
David Sommerstein reports the answers lie in cream cheese, Old McDonald, and something called the Chobani Paradox.

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Let's start with cream cheese. Mike Kiechle's a fourth generation dairy farmer in Jefferson County. Family lore has it his great-grandfather brought the now-famous Philadelphia cream cheese recipe from Germany.

"Somehow he was involved. I don't know exactly how. That's all I can tell you."

Kiechle's taking me on a ride in his tractor while he spreads manure. Kiechle has almost 200 cows. This is the guy the likes of Governor Cuomo want to get bigger. But he says he's not expanding.

Ron Robbins is investing $4 million in a three year expansion in Sackets Harbor. Photo: David Sommerstein
Ron Robbins is investing $4 million in a three year expansion in Sackets Harbor. Photo: David Sommerstein
This is what everyone is calling dairy's opportunity of a generation. The demand for milk is huge, maybe bigger than ever, but again, Kiechle's not expanding. And he's not alone. I've heard this from lots of North Country dairy farmers.

Kiechle says it's two things. First, he has $10,000 to $15,000 invested in each cow. Getting, say, 50 more cows, is a frightening risk, given the roller coaster highs and lows of the price he's paid for his milk. And, he says, "it's just not the 50 cows I gotta buy. I'm going to have to have some more land. My equipment's not big enough. My barn's not big enough. And I gotta get the cows, so when you add all of them together, that's a huge investment. And the return that we've had the last ten years, you gotta think twice before you invest your money there."

The second thing is dairy isn't your typical supply-and-demand market. Sure, if people want more milk, you can raise more cows to make more milk. But if people suddenly want less milk – you've still got all those cows to milk.

Andy Novacovic of Cornell University says it's harder for dairy farmers to "deal" with suppliers: "It's not like a normal supplier where you can negotiate and say, hey, this is what I'll make for you at this price and here are some other things that are important to me so we'll make this deal."

Novacovic specializes in another wrinkle in the dairy industry – that farmers don't even set their own price. The government does, through an incredibly complex and arcane thing called milk marketing orders. In fact, so many people were calling Novacovic to understand how this milk price system affects the Greek yogurt boom, that he had to write about it.

So Novacovic wrote a paper called The Chobani Paradox – named after one of the top Greek yogurt brands – Chobani.

The paradox is this. Demand is up. But it may not be an incentive for farmers to boost supply.

The way the milk marketing system works, the price farmers are paid is actually a jumbled average of prices – for yogurt, for cheese, for fluid milk.

"When you put all that mix together, you kind of lose the excitement of the Greek yogurt boom. And when you net it out to dairy farmers, there isn't really any perceptible bang that they can see that would inspire them to make a big investment."

Add in that farmer cooperatives pay their members the same whether one farmer sends his milk to a Greek yogurt plant or a cheddar cheese plant, and Novacovic says essentially, the impact of the demand for Greek yogurt is muted. That's the Chobani Paradox.

Still, it's not stopping some farmers from growing bigtime. Just ask Old McDonald.

"While the pricing system is structured so that it's antiquated, it doesn't directly benefit us as producers in a direct way, but in an indirect way does, because as demand for milk goes up, our ability to negotiate a better price will ultimately go up."

Ron Robbins runs a successful farm tourism business in Sackets Harbor. He calls it, quaintly, Old McDonald.

But right across the street is his real farm - North Harbor Dairy, one of the biggest, most high-tech operations in the North Country.

The milk parlor is slick as a spaceship, with gleaming stainless steel, blinking green lights, and computerized readouts.

Robbins is pouring $4 million into his farm over three years. He's going from milking 900 cows last year to 1,400 next year.

"If we were trying to do the same things we were doing 40 years ago, I wouldn't be as excited about the dairy industry as I am. I think we've got a great future."

Robbins believes the Greek yogurt demand will eventually goose higher milk prices. In part, that's because plants can pay premiums on top of the government price to attract more milk.

Bruce Krupke directs Northeast Dairy Foods Association, which represents 120 dairy plates across eight states. He believes the yogurt plants will pay those premiums.

"And so, there will be, in essence, a bidding war where it gets to a point where there's this really big demand, then manufacturing and processing plants will have to step up and agree to pay even higher voluntary premiums."

A lot of farmers are skeptical of this. They worry the plants will just get milk from Michigan or Pennsylvania or another state.

Remember Mike Kiechle with his cream cheese great-grandfather? And Ron Robbins with his $4 million investment? Jay Matteson says there's a place for both of them. Matteson is Jefferson County's agricultural coordinator. He says what's disappearing are the farms in between, the 200 to 500 cow dairies.

"When you get over that 200 cow range, you become more of a people manager than a cow or a crop manager, and you have to start complying with the environmental regulations that exist, which are extremely expensive. Y'know, it makes those farms in that mid-size range really challenged to be profitable".

So is there a milk shortage in New York? In a year or two, yes, increasing Greek yogurt production will fuel demand. Farmers will step in to supply that milk, whether they're in New York, Matteson says, or somewhere else.

"Wouldn't we rather have the milk produced here in New York State and manufactured into products in New York State, and ship those products out and ship that money back?"

Lawmakers in Albany and Washington are proposing a boatload of measures to try to solve the Chobani Paradox and capitalize on a once-in-a-generation opportunity.

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