Marketing Local Milk

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Over the past year, one of my central Illinois neighbors bet the farm on selling his milk directly to local consumers.

Matt Kilgus laughs a little nervously as he admits, “We’ve pretty much put — along with our hearts and souls — all of our finances into this, too. If this were to fail, we wouldn’t have a dairy here anymore.”

Striking out on their own and investing in on-farm infrastructure to filter, pasteurize, separate, blend and bottle milk from their 80 gentle, fawn-colored Jersey cows — 3,500 gallons of it every week — was, and is, a risky move for Kilgus Farmstead.

But Paul Kilgus, 41, and his nephew Matt, 29, saw no other way to survive as a small family-owned dairy within an industry characterized by ever-increasing concentration. They knew that more consumers, their rural neighbors as well as urbanites, wanted milk from someone they know and trust, someone whose values echo theirs. So they were willing to bet that serving this community with access to high quality local milk would enable their farm to not only survive, but be a thriving business for the next generation.

Consolidation squeezes out small farmers

Indeed, the dairy industry echoes the story of consolidation in American agriculture, which leapt into high gear following Nixon-era Agriculture Secretary Earl Butz’s ultimatum of the early 1970s: “Get big or get out.”

USDA statistics show that the policies Butz instituted devastated small farms. In 1960, when Paul’s parents Duane and Arlene Kilgus were in the dairy business, Illinois had 52,000 dairy farms. By 1970 that number was 16,000, and today there are a mere 1,200 farms that include dairy cows in Illinois.

Part of the reason small farms were squeezed out was the consolidation of milk processing. In 1972, as Butz’s policies were beginning to take effect, there were 2,507 dairy-processing facilities in the U.S. This meant that in the ’50s and ’60s, the Kilguses and their neighbors could choose any one of a number of local buyers to sell their milk to. The healthy competition created by many dairies and many processors kept prices high enough for farmers to make a living, and low enough for consumers to afford local milk.

But by 2002, there were only 524 processors — an 80 percent reduction in just three decades, according to the USDA’s Economic Research Service (ERS). Like commodity crop farmers, dairy farmers had been forced to become “price-takers, not price makers.” They were now at the mercy of price swings in the commodity milk market, which could reach historic highs or, more often, below-break-even lows.

A 2008 report from the ERS found that one of these processors, Dean Foods, “bottles 33 percent of U.S. fluid milk.” In some states, that figure is much higher. Senators Russ Feingold (D-Wis.); Bernie Sanders (I-Vt.); and Charles Schumer (D-N.Y.) reported to the Justice Department’s antitrust division that Dean Foods controls fully 80 percent of the fluid-milk market in Michigan, Massachusetts and Tennessee.

Numbers like these led to a class-action lawsuit against Dairy Farmers of America and Dean Foods last fall. The suit accused the companies of price-fixing and monopolizing fluid milk distribution.  At the end of June, a panel of Wisconsin dairy farmers called on President Obama, the USDA, the Department of Justice and Congress to aggressively prosecute antitrust cases involving price collusion, racketeering and market manipulation by the dairy giants.

Jersey cows on  the Kilgus Farmstead enjoy the early spring sunshineThe plaintiffs responded that the lawsuit was without merit and claim that industry consolidation is good because it leads to cheaper milk. But cheap prices often come at high costs. As mega-dairies move in, small farmers are forced out of business by low prices, rural economies are devastated and chefs and ordinary people wanting high-quality milk from a known source are out of luck.

Large farms also pollute on a large scale. When you have thousands of cows living in close quarters, you get pollution. For instance, 1.5 million cows in a large farm operation can produce 30 million tons of manure. Even a “small” industrial-scale dairy with 2,000 cows produces the same sewage as a small city, but with no waste treatment.

The Kilgus family was well aware of these facts. Matt explains that it cost them about $18 to produce a “hundred-weight” (100 pounds, about 12 gallons) of milk. But that price fell to about $11 per hundred-weight in 2009, a little more than half than the cost of the production. [At the same time, Dean Food's profits were up 147 percent in 2009 compared to 2008.]

It doesn’t take an economic genius to know that when the price you get for a gallon of milk is less than it costs you to produce it, getting out of the dairy business is the only way to survive. And sometimes even survival is not an option.

This past January, following months of record low milk prices, Dean Pierson, a third-generation dairy farmer in upstate New York, went out after the morning milking to shoot his 51 milk cows, one by one, before turning the rifle on himself. He left a note on the outside of the barn asking the reader not to come in and to call the police. While Pierson’s suicide undoubtedly had many causes, his neighbors assume that powerlessness in the face of falling milk prices contributed to his desperate act.

‘Respect for the price of butter and eggs’

Instead of continuing to be buffeted by forces and prices beyond their control, the Kilgus family decided to play David to the industry’s Goliath. The rock in their sling was the public — friends and neighbors, as well as urban consumers — people who wanted to know who produced their food and how.

“We noted a vacancy in Illinois — no one was bottling and selling their own milk,” Matt says. “We knew that, of all our options, this would be the hardest. But we also sensed that the time was right, and that this was something we could succeed at, with the help of local consumers.”

While the slow wheels of the Department of Justice turn in Washington, back on the Kilgus Farmstead the work of a small dairy farm continues. Paul and his son Trent roll out of bed at 3:30 a.m. every morning and do the milking from 4:30 to 6:30 a.m. By 8 a.m. they have cleaned the milking parlor and are busy with the outside chores — looking after the heifers and dry cows, breeding, birthing, shuffling young stock around, spreading manure and doing equipment maintenance. At the same time Matt and his aunt Carmen and wife Jenna are busy bottling milk that will head out to local stores before noon.

Watching the Kilgus family work reminds me of what William Vaughan wrote about growing up on a farm:  ”There’s something about getting up at 5 a.m., feeding the stock and chickens, and milking a couple of cows before breakfast that gives you a lifelong respect for the price of butter and eggs.”

milking a cow at Kilgus farmsMore and more consumers, even those with no farm background, are respecting the price of butter and eggs, fruit and vegetables, meat and milk from local farmers.

“At first we thought that maybe people wouldn’t pay that extra dollar for quality, but that’s not been the case,” Matt said. “We just got out there and told our story — ‘That’s only our milk, from our Jersey cows, in those jugs. We have full control of this product — from the food the cow ate to how she was milked to the quality and timing of the bottling and distribution.’ ”

That quality, and that control, make the success of Kilgus Farmstead, and of local foods everywhere, a good bet.

 


Terra Brockman is an author, a speaker and a fourth-generation farmer from central Illinois. Her latest book, “The Seasons on Henry’s Farm,” now out in paperback, was a finalist for a 2010 James Beard Award.

Photos, from top:

Matt Kilgus looks over his brand new milk bottling machinery in March 2009.
Jersey cows on the Kilgus Farmstead enjoy the early spring sunshine.
Natalie Mosteller Wolf tries her hand at milking one of the cows at Kilgus Farmstead.
Credit: Terra Brockman

 

 

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