Milking Profits

Cows waiting to be milked at Threemile Canyon Farms near Boardman Winston Ross Cows waiting to be milked at Threemile Canyon Farms near Boardman

How consolidation is reshaping Oregon dairy farming.


If you hadn’t heard about the controversial application to replace a venerable tree farm along the Columbia River with 30,000 cows, you might not know that the capital of the Oregon dairy industry is located a few miles west of Boardman, a town of 3,383 best known for housing the state’s second-largest port, the Port of Morrow.

California dairyman Greg te Velde requested a permit to launch  a huge dairy operation in this Eastern Oregon community in 2015. The lease had expired on the land te Velde had been farming — property owned by  another mega-dairy, Threemile Canyon Farms, home to 70,000 Jersey heifers.

dairy1Workers at Threemile Canyon Farms disinfect and disconnect the udders of jersy cows after they're finished milking.

So te Velde purchased a 7,288-acre parcel nearby for $65 million and began cutting down the thousands of poplar trees that were used for lumber. (At one time the trees were also intended to fuel a Boardman biorefinery.)

More than 4,000 comments in opposition poured into the offices of the Oregon Department of Agriculture; the majority of commenters expressed concern about the impacts of another gargantuan herd on the region’s air and water quality.

But as a permitted use on this wide-open swath of the state, te Velde had only to file the right paperwork. From the moment he turned in his application, te Velde’s Lost Valley Ranch was, for all practical purposes, inevitable. 

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What is also inevitable, say many cattle ranchers, is the continuing consolidation of the industry. Farming is a tough job, and many family-owned operations are selling their businesses. Fueling the trend are the same forces driving mergers and acquisitions in many other sectors, from banking to retail. 

“What’s been going on for the last 25 years in dairy and in beef cattle to a certain degree is no different than almost every other industry in the country,” says John Wilson, president of Beef Northwest, the state’s largest feedlot. “To me, it’s an inevitable process when there are efficiencies and economies of scale to be realized.” 


Dairy production soars

The numbers tell the story. In 2016 Oregon’s dairy industry produced 2,593 million pounds of milk and employed 1,615: record numbers in both categories. Two years earlier, dairy operations grossed  $650 million, another new high.

These figures coincide with consolidation. Three hundred Oregon farms ceased operations between 1990 and 2017. The average size of a dairy herd in Oregon nearly doubled between 1997 and 2012, and the number of farms with more than 1,000 cows grew from eight in 1997 to 25 by 2012. 

 “This trend is happening across the country,” says Troy Downing, a dairy specialist at Oregon State University.

“A lot of the dairies in the Midwest that were milking 80 cows are retiring at a fairly fast rate; their neighbors are buying those cows and adding them to their existing facilities. The ones staying in business are continuing to grow, buying more land base, spreading out fixed costs. You get a better deal if you buy larger volumes of feed.” 

But is the rise of Big Dairy preordained?


Dairy farms get bigger partly because of downward pressure from consolidating grocers, but also because the big dairies wield enough political clout to avoid regulations that might slow them down, critics claim.

The industry also gets bigger, at least in Oregon, because consumers keep buying its products — especially Tillamook Cheese, which sources two-thirds of its milk not from grass-fed cows on the Oregon Coast but from confined cattle on Boardman mega-dairies, including Threemile and Lost Valley.

There may be alternatives to unchecked consolidation in the dairy business, but they only come at the hands of consumers who demand something different, with their votes and with their wallets. 

“Oregon is really letting these megadairies off the hook when it comes to some environmental regulations,” says Ivan Maluski, policy director at the Friends of Family Farmers, an Oregon nonprofit. “We hope consumers make sure they’re learning about where their food comes from and making choices with their food dollars to support small and midsize farms.”


It’s an inevitable process when there are efficiencies and economies of scale to be realized.”  — John Wilson


 

In 1992 there were 135,000 farms nationwide with fewer than 100 head of cattle. By 2006 that number had dropped to just 58,000. 

“There’s a reason those dairies went out of business,” says Morrow County commissioner Don Russell. “Nobody wanted to work that hard. At these large-scale dairies, they’re union employees with vacation time and benefits. At the end of their shift, they get to go home.” 

Suzie Frederickson’s family has been raising cattle for generations in Eastern Oregon. But she switched to beef, because those cows don’t require 365 days a year of milking twice a day. “We weren’t ever able to take a vacation or leave the farm for more than a few hours at a time,” she says. “My dad was one of the last of the small-dairy farmers. It’s hard work. It had to evolve in order for people to have a life.” 


Tillamook's dual identity

No dairy has evolved more successfully than the Tillamook County Creamery Association,  a cooperative of nearly 100 farmers who make Tillamook Cheese. Tillamook is the No. 3 brand in America, second only to Kraft and Sargento. The creamery grossed $654 million in sales in 2015, according to the trade magazine Dairy Foods. 

Tillamook’s history is rooted in the co-op — and the creamery’s marketing revolves around local production. “This whole community is built around Tillamook Cheese,” a local business leader says in a video posted to the Creamery Association website. “If we were just making commodity cheese here, none of these farms would be in business today,” says another. “It became known that good cheese comes from Tillamook County.”

But there is another chapter to the Tillamook story, and that chapter is about the Boardman megadairies. As the co-op has grown, the Creamery Association needed more space than the coast offered. “Only so much milk can be responsibly produced in Tillamook County,” says the association’s CEO, Patrick Criteser.  

Threemile provided room to expand. The 144 square miles the farm now occupies in Boardman wasn’t supposed to host a massive dairy, says Marty Myers, Threemile’s part owner and general manager.

It’s a mid-September morning, and Myers is giving a tour of the property. The farm’s history dates back to 1998, he says, when R.D. Offutt Company, a potato grower from North Dakota, went shopping for farmland in the eastern part of the Columbia River Gorge.

Offutt sought to locate an agriculture operation in the Gorge, and settled on a 93,000-acre parcel a few miles west of Boardman.

When he heard Tillamook’s farmers were shopping for new land to expand its operation, Myers lobbied the co-op to have the Boardman property added to a list of 20 candidates. Morrow County had a temperate climate, a long growing season, and was close to rail, interstate and water transport. It was also a square parcel, 12 miles by 12 miles. 

“If we put livestock operations in the middle of the farm, there’s 6 or 7 miles of buffer zone,” Myers says. The co-op narrowed its choices to Boardman and Klamath Falls. The gorge won out, the creamery built a cheese factory in Boardman in 2001 and Myers set about finding the cows to supply it with milk.

“We bought everybody’s cows they didn’t want anymore,” he says. “That’s typical.” The farm started at 400 cows. By 2003 it was 10,000.

graph1 1

Threemile quickly built a closed-loop system: Cattle eat a grain formula that is grown on the dairy’s acreage, minimizing the feed costs that can fluctuate wildly on the open market and are the bane of a small farmer’s existence. Threemile also employs two massive methane digesters that process hundreds of thousands of gallons of cow waste ferried from the barns through a network of PVC pipes. The digester converts the waste into energy, driving operating costs down even further. 

It’s a masterpiece of design efficiency that produces more than 1.4 million pounds of milk each day, all of which is sold to Tillamook, which continues to grow. “When I first started working with Tillamook [in 2012], they were marketing cheese to 20 different wholesalers,” recalls Downing. “Now they have five or six, who all want larger volumes.”

dairy2Jersey cows await their turn to be milked at Threemile Canyon Farms near Boardman.

Threemile’s economies of scale mean no other conventional dairy farmer can hope to produce milk for the same cost. 

“If the price of milk is $16, big dairies can produce it for $15.09 and smaller ones produce it for $15.50. That’s the big difference,” says Chris Eggert, who runs a dairy farm just south of Wilsonville.

“A lot of smaller dairies close because they don’t have the financial backing to withstand a couple years of losses during tough years. And when you’re the last dairy in an area, it gets harder to justify the equipment guy, the supply guy coming out. They used to make 10 stops; now they make one.” 

In the five years after Threemile set up shop, the number of dairy farms in Oregon dropped to 289, down from 363 in 1997.


“Only so much milk can be responsibly produced in Tillamook County.” — Patrick Criteser


The dairy farmer's workload

Nobody says dairy farming is easy. Volatility in the price of milk means farmers sometimes have to weather years of downturn before they can return to profitability. Feed prices are up. Tractors cost a small fortune to replace. And about that workload: it’s 24 hours a day, seven days a week, 365 days a year.

“You can’t force family members to stay in this business and say yes to that work cycle,” says Tami Kerr, executive director of the Oregon Dairy Association. “We’re paying good wages, but it’s really hard to fill these positions.” 

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In fact, one of the reasons small farms go out of business is because the children of dairy farmers often refuse to take over. Farmers end up selling their cattle to a neighbor, so that one farm becomes twice as large, even as the number of cows being milked and grazed in the same area stays the same. Even a slightly bigger farm is more efficient than a small farm: Purchasing a $60,000 tractor makes more sense on a property with 500 cows than on one with 250. 

These and other market forces, say conventional dairymen on both large and small operations, are not going away.

Threemile is “one of those facts of life,” says Myers. Agriculture, he says, has been consolidating since the 1900s, when people in rural areas started to migrate to urban areas “for greater opportunity.” (Myers himself lives in Portland with his family.)

“It’s just not agriculture that drives that,” he says. The decline in family farms is “unfortunate,” Myers adds, “but it’s reality. We’ve become more efficient in milking and nutrition genetics as the number of cows has decreased and the number of farms has decreased.” 

Lost Valley’s te Velde declined to be interviewed for this article. He emailed the following statement through his public relations agency:

“I’m a third-generation dairy farmer. General manager Travis Love is second generation. We’ve watched farms come and go, prices rise and fall. We’ve seen technology change the way the job is done. Like everyone else, we’ve done our best to adapt.  

The dairy industry is best when farms of all sizes contribute. In Oregon, we’re lucky to have farms of all sizes, from the smallest family operations to dairies like Lost Valley.” 


“When I first started working with Tillamook [in 2012], they were marketing cheese to 20 different wholesalers. Now they have five or six, who all want larger volumes.” — Troy Downing


One way of running a dairy farm that has withstood much of the pressure to grow at all costs: organic. Once farmers complete the multiyear process involved in switching their land to organic, they enjoy a premium on milk prices. And if they organize, they can withstand the steep fluctuations of the global milk market. 

Chris Eggert is the scion of Chuck Eggert, who recently sold the natural-foods company Pacific Foods to Campbell Soup Company for $700 million. Pacific got into the dairy business because it was getting increasingly difficult to find consistently good milk.

“For the volume of organic milk we were using, we couldn’t source it consistently,” he says. “So we started running our own dairies. It was really a self-defense mechanism. We’re trying to demonstrate that you can still have a family dairy and manage it.”  

Eggert runs an organic dairy operation on a ranch with a mixture of 500 Holstein and Jersey cows. Like Threemile, Eggert’s farm houses a long covered barn with cows on each side, and a lane down the middle where workers dump feed and the cows munch through metal gates. Cows on the Threemile and Wilsonville farms are milked twice a day, their udders linked to automatic feeders. 

But that’s where the similarities end. Myers’s cattle spend all but about an hour and a half each day in (fastidiously cleaned) open-air barns, which feature a soft dirt bed for each cow and room to move around and drink from troughs. But the only grass on the property lies between those barns  —  for workers, not cows to traverse. 

Eggert, whose cows are required to have access to verdant pastures, is careful not to criticize his conventional neighbors, or even the megadairies in Boardman — “I’m not going to tell anyone else to be organic. But it’s better for us,” he says. And there’s no question cows are meant to be pasture raised, he says.


The average size of a dairy herd in Oregon nearly doubled between 1997 and 2012, and the number of farms with more than 1,000 cows grew from eight in 1997 to 25 by 2012. 


 

Since the 1970s, the industry standard has been to keep cows in a barn, grow corn and bring the feed to the cows, says Jon Bansen, a fourth-generation dairy farmer of 200 cattle in Monmouth.

“That’s what was being pushed by the universities and everyone else,” Bansen says. “You can get more milk out of cows if you stuff them full of grain all day long. But it takes a big toll on everything. Cows are meant to be out harvesting their own grass, getting fresh air, grazing and filling up on foraging. They’re ruminants. When you take them off pasture, they don’t last very long.” 

Organicvalley2The Hoffner family, members of Organic Valley Co-op

To be sure, it’s not realistic, at least not without some major shifts in consumer demand for organic dairy products, to expect that every conventional dairy farmer in Oregon could switch to organic. In 1988 seven farmers formed the Organic Valley cooperative, turning the business model of dairy farming on its head.

The members of the co-op agreed they would offer a stable pay price so they could withstand spikes in the cost of feed or drops in the price of milk as a commodity — all with 100% organic and pasture-raised cows.

Organic Valley’s farmers grossed $1.1 billion in sales in 2016, netting $6.3 million in profit, often earning more than twice what conventional dairy farmers get for their milk. And nationwide, sales of organic dairy were up 16% last year over 2015.

But the forces of supply and demand dictate that every new organic dairy farmer makes it a little harder for existing organic dairy farmers to find a market for their milk, and the profits in that niche industry have begun to level off in recent years.

“If you look back, the differential between organic and conventional wasn’t always sufficient to support the extra costs of organic dairy farming,” Criteser says. “Then the differential became very substantial, a lot of folks moved into it, converted, built new farms, and you’re seeing that differential converging again.” 

Organicvalley1Looslea Holsteins | courtesy of Organic Valley Coop

 


 

The efficiency of the mega-dairy

Myers is proud of Threemile’s operation and the farm’s relationship with the Tillamook Creamery. The farm’s closed-loop system is a model of sustainability, he says. And the gorge sees only about eight inches of annual rainfall, compared to the 120 inches a year in Tillamook County, which gives Threemile an advantage over its coastal counterparts in controlling runoff of cow excrement into area streams.

“Ours doesn’t have anywhere to go,” Myers says. Twenty-five percent of the total farm area has also been set aside as a conservation zone.

Megadaries yield economic efficiencies, supporters say, while operating sustainably and with attention to animal welfare.

“At Lost Valley, our commitment to quality milk and an efficient operation is the same now as it was when we began in 2002 as Willow Creek Dairy,” te Velde’s statement noted.

“It’s the same as it would be if we were a much smaller operation. It has to be. Without our animals, and without the land, we don’t have a business, and our employees don’t have jobs. Millions of dollars wouldn’t be spent locally.”

Russell, the Morrow County commissioner, echoes those sentiments. It’s hard to get businesses to locate out in Boardman, he says: “We liken it to baseball; if we’re batting .300, we’re doing pretty well. More industry means more jobs.” 

BeckySeals TCCA farmerBecky Seals, Tillamook County Creamery Assocation farmer | Courtesy TCCA

Last July, state agencies denied a request from health and environmental organizations to reconsider the permit for Lost Valley Ranch. Opponents asked regulators to review whether the permit does enough to protect surface water and groundwater sources. 

“The consolidation of that many cows in an area, the pollution that comes off of the land has huge impacts on the Columbia River Gorge,” says Lauren Goldberg, staff attorney at Columbia Riverkeeper, an environmental nonprofit. 

The Oregon Department of Agriculture requires manure to be managed so the nutrients don’t discharge to surface or ground waters, said William Matthews, a manager for the Department of Agriculture, in an email. But methane digesters are not required, and te Velde’s ranch does not have a digester. 

Te Velde’s spokesman says the ranch, which employs 60 people, plans to install a digester in “a few years,” adding that they’re “incredibly delicate and expensive and thus require time and planning.” 


"We’ve become more efficient in milking and nutrition genetics as the number of cows has decreased and the number of farms has decreased.” — Marty Myers


Grain-fed cattle produce significantly less methane than grass-fed. But Threemile’s  methane digesters only process waste from about two-thirds of the dairy’s cattle. Methane digesters also do nothing about ammonia or nitrous oxide, a byproduct that contributes to global warming and a persistent haze that can obscure some of the Gorge’s iconic views. 

Oregon DEQ regulates air quality in the state and currently does not have any air quality regulations or permits for animal agricultural operations of any size, Matthews said.

“What that does in effect is create a subsidy,” says  Ivan Maluski. “That allows them to do business in a way that undermines smaller farms. Even Idaho has stronger air-quality laws than Oregon. The state is just pretending this problem doesn’t exist, from a regulatory standpoint.” 


"We liken it to baseball; if we’re batting .300, we’re doing pretty well. More industry means more jobs." — Don Russell


In lieu of regulation, the market marches forward. “When Tillamook Cheese made the decision to build a plant in Boardman, one of the things they were wrestling with was, ‘Are we going to continue to carve out a little niche on the Coast, or do we ramp up production and be a player in Walmart and Costco?’” says OSU’s Downing. “You have to have enough volume to take up the shelf space in grocery stores. The problem is there aren’t that many small independent grocers, like there used to be.” 

For their part, Tillamook Creamery executives say they meet rigorous standards for the milk they put into their cheese. “We produce the product [in Boardman] the same way, we make cheese with the same formula, the same standards of quality,” Criteser says.


The future is big

Why don’t Tillamook's marketing videos feature imagery or interviews from Threemile Canyon Farms?

“Placing a spotlight on our supply-chain partners has not been a focus of our marketing efforts to date,” Creamery spokeswoman Tori Harms wrote in an email. “We’re always going to place a spotlight on the 90 farming families in Tillamook County who founded our co-op more than a century ago and still own and lead it today.” 

But the future of the company depends on a mix of small and large farm operations. There aren’t enough organic farms, and there certainly aren’t enough small farms, to feed America, Criteser says. 

“The idea that if we could just stop any large farm from being built, stop technology from being leveraged, and we’ll have all these little red barns dotting the landscape, and that’s where our food will come from —  it’s not economically feasible, or even socially,” he says. “Two percent of the population today has any relation to agriculture. The U.S. has a lot of natural advantages in terms of producing feed for the world. We can’t do that six acres at a time.” 

For now, consumers seem happy with the equation:  “Our customer loves our quality, and I would put us up against anybody in terms of quality,” Myers says. “There’s a difficult comparison between pasture raised and the way we produce milk. I’ve never compared any standards but what the customer requires of us.”

A version of this article appears in the November/December issue of Oregon Business.

This article has been amended to reflect the following corrections.  Organic Valley was founded in 1988, not 1998, and the cows were organic and pasture-raised — not exclusively grassfed.  The article has also been amended to clarify that CEO Patrick Criteser believes the future of the Tillamook Creamery Association will be a mix of small and large farming operations.

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