Thoughts on the economic prospects of dairy farmers in a vegan world
For the past decade or more I have been observing a gradual transition in consumption of dairy milk towards various plant based alternatives. At the beginning I noticed these alternatives appearing only in some hipster cafés in Brighton, UK, where I used to live. Nowadays, more people seem to choose dairy alternatives, and more places offer them, including all major supermarkets. At my current work place in Cambridge, UK, for example, a large proportion of colleagues prefer those alternatives for various reasons. It may be because of their awareness of the larger ecological footprint of the dairy industry in comparison to growing crops needed for dairy alternatives. Another reason might be that, given the total available arable land on earth, the world population could ultimately and only be fed in an equitable fashion using a plant-based diet. But where does that leave dairy farmers? Having grown up on a dairy farm and being an engineer, I am interested in the numbers that support the trend towards this presumed goal, but also in its potential consequences on industry and society. I do admit that I am speaking as an economics layman but also as an aficionado of cream in all its forms.
In general, when I hear some assertions I usually tend to search for statistical data that put these claims in context. The late statistician Hans Rosling educated the world in this respect with insights on many aspects of society such as the evolution of GPD, child mortality or natural catastrophes, always pointing out the use of statistical data to question any claims made. A vast source of such statistical data is https://ourworldindata.org/ which offers statistical analyses on many matters, including https://ourworldindata.org/yields-and-land-use-in-agriculture or https://ourworldindata.org/food-per-person which pertains to the topic of this article. And last but not least, “There is no Planet B” by Mike Berners Lee, https://theresnoplanetb.net/, presents a compelling case for the transition to a plant based diet. In principle all the energy numbers stack up and make sense to me: in order to feed the world population in an equitable manner, mankind ought to consume crops directly rather than feeding human edible food to animals and then consume those or their products at a significant energetic loss in the energy conversion chain. Dairy farming would consequently only make sense in, and would be limited to non-arable land such as Alpine regions. Butter and cream would become a luxury; oh dear.
However, for dairy farmers rearing cows and producing dairy milk is adding value which allows them to make a living out of that added value. As a son of an Austrian dairy farmer in the region of Upper Austria I know that the family farm was economically viable through this additional added value. 40 dairy cows on 40 hectare of arable land allows our family to make a decent living. The land was used to grow grass, barley, and maize in order to feed the cows with little external food input. If, in a world of mostly plant based diets for the majority of the population, the same land was used to produce only cereals or pulses, the family would not be able to make a living on the generated revenue any more, given that these crops are traded internationally as commodities. What would be the consequences for the farm that has been in the family for more than 300 years?
In order to understand the results and consequences of the claims in “The World in Data” and “There is no Planet B”, I created my own little spreadsheet for calories and nutritional components produced, per kg and per hectare to start with. The aim is not to be most accurate but to obtain an idea of the orders of magnitude involved. Assuming a specific energy density of around 17MJ/kg for both carbohydrates and protein, and 37MJ/kg for fat the following table shows roughly the specific component and energy contents for some types of crops that can be planted on our family farm against those of dairy milk. This list is by no means exhaustive but a starting point.
If you look at the food energy or component contained in both dairy milk and some viable crops for the region, the energetic gain in the latter is much higher. Not surprisingly, soya contains mostly protein, and rapeseed mostly fat leading to a very high energy density. Most crops offer a factor of 5 higher energy yield than dairy milk per mass unit, with rapeseed nearly a factor of 10 above dairy.
If you look at the food energy or component harvested per hectare for both dairy and some viable crops for the region, the energetic gain in the latter is higher, too, which is not surprising. The following table is made with the assumption of about 1 cow per hectare of arable land (for Upper Austria that is), and that a cow would produce around 5500kg milk per annum as an average over a typical number of lactation periods over her life time.
Growing soya in that part of Austria produces more protein than milk; the high score in terms of protein, however, would be spelt. In terms of energy, spelt fares well together with wheat. Yet it is maize that produces most energy per hectare, nearly an order of magnitude, i.e. a factor of 10 more than can be produced on dairy obtained from the same land. Note, that this table is derived from data available from AgrarMarkt Austria, https://www.ama.at/ and does not include the amount of fertiliser used to obtain the presented yield. To my knowledge, maize does need a bit of help using nitrogen-rich artificial fertilizer.
What about the financial gain? Without going into the details of the operational and capital expenditure as well as labour costs, all to be factored into profits, the maximum obtainable revenue is determined by the price the produce can fetch on an international market. Using again average price information from AgrarMarkt Austria, the following table confirms that despite the lower energy yield for dairy the monetary yield is higher in dairy farming, obviously due to the added value in rearing cattle to produce milk from crops grown on the land.
On average, with some exceptions, dairy would yield up to twice the gross revenue in comparison with viable crops in that region of Austria. As said earlier, this allows family businesses to exist and remain commercially viable, which will of course depend on the operational and capital as well as labour costs. These are mostly specific to the individual families and farms. The question is, however: if, or when the world shifts away from consuming dairy products towards plant based substitutes, where does that leave the current dairy farmers and all the cultural fabric that goes with it?
Whether a dairy farm is and remains commercially viable depends largely on the margin between achievable revenue from selling dairy milk and total production costs. With respect to the achievable revenue, I could imagine two factors pushing down the price of dairy milk, a commodity traded on the world market:
- Reduced demand for dairy milk due to an increased awareness of the ecological (including carbon) footprint and energetic inefficiency; this is mostly a middle-class effect which I do not believe to become the main driver in the short term. This limited customer base has an ecological consciousness and has either enough purchasing power to pay a higher price for dairy alternatives, or is simply prepared to pay that price;
- Competitive prices of dairy alternatives such as plant-based milk; for instance, oat milk ought to be significantly cheaper given the yield per hectare and the industrial scale production in comparison to running a dairy farm; most people on the lower end of the wealth distribution spectrum would then probably gravitate towards the cheaper dairy-milk-like milk alternatives. At the moment early adopters are being milked (no pun intended).
On the production cost side, there are perhaps three major factors that have more or less wiggle room:
- Capital costs: specific to the Austrian production environment, given the climatic constraints with temperatures ranging from -25 to +35 degree Celsius, farms in most regions in Austria are forced to keep cattle in winter-proof stables and barns. In comparison to more clement regions in the world this adds to the capital expenditure and renders these farms less competitive on an international scale.
In addition, when or if carbon costs will be imparted onto energy costs, farming and milking machinery is bound to increase in price, adding to the capital costs for the production equipment.
- Operating costs: an increase in production input prices will make the margin narrower, e.g.
- rising fuel and energy costs when or if carbon costs will be imparted onto energy costs; this may apply directly to fuel needed to run farm machinery and equipment, or indirectly, through energy expended to produce fertiliser and additional food stuff supplements such as soya beans. Eventually, the non-sustainable production of soya in the some regions of the world will need to change; environmental costs will have to be accounted for, which will increase the cost of this production input.
- In addition, the increased awareness in animal welfare and environmental protection in the Western world, results in more regulations and consequently in a more onerous operating environment, e.g. more constraints on animal husbandry, restrictions on slurry spreading, etc. Per se a positive development, but a competitive disadvantage on a global market with contestants from countries maintaining lower standards. Unfortunately, most consumers do not necessarily put their money where their mouth is and accept higher local dairy prices as a consequence of the pressure they exert on the farmers.
- Labour costs: As long as the traditional farms are run as family farms, labour costs are not so transparent as family members are prepared to put in many unaccounted hours. This commitment, however, is more on the decline as the young generation prefer regular work and income. As a consequence, labour costs, in particular in labour intensive dairy farming, are expected to only increase.
So what are the prospects? In the long term, on a global equilibrium with respect to energy efficient food production feeding the world population, most arable land would be used to grow human edible crops, and dairy milk would only produced where that is not possible, e.g. Alpine regions. Where does that leave current dairy farmers? I can imagine several scenarios:
- Part-time farming: since smaller family farms won’t be able to make a living from growing commodity crops, protein rich or other, the farm has to be run part-time, with the main family income from other employment;
- Land and farm consolidation: the minimum size for a commercially viable farm will result into concentration of farms, first through renting and working more land, eventually through acquisition;
- Niche products: for a small number of farms only, as niche products are usually for a limit market with higher purchasing power.
So, alas, good bye to the dense farming communities of the past and all its cultural heritage. This transition won’t happen immediately, but certainly over several generations. On a time scale of thousands of years, however, there were always transformations in societies. There is nothing intrinsically bad in this change, it is only different, and we have to get used to it. And there is always the beautiful landscape to enjoy:
Post Scriptum: Note that the above tables do not take into account any micro-nutrients, nor do they differentiate the kinds of protein being contained in different crops, i.e. in terms of essential and non-essential amino-acids. Another limitation is that of the crops listed to be grown in my home region which did not include lentils; lentils are a great protein and energy source. I simply do not have any personal experience on growing lentils nor data for the region of Upper Austria.
All tables give rough estimates of means and do not provide information on the statistical distribution; not even a standard deviation is given. In this text I am only interested in the order of magnitude in order to confirm claims in the book mentioned above using personal experience.