America’s dairy industry is being ravaged by bird flu, leading to a significant decline in milk production in many states, including California, the nation’s largest dairy-producing state that hit a 20-year low in 2024. But unlike eggs, which spiked in price due to the bird flu’s impact on poultry flocks, consumers aren’t likely to see a similar increase in milk prices because of federal price control laws. 

However, while those price controls save grocery store shoppers money, dairy farmers say it’s pushing them out of business. 

“I can’t see how any dairy farm is going to sustain this,” said Brenda Cochren, a Pennsylvania dairy farmer and agricultural reform advocate. 

For decades, dairy farms have shrunk under the pressure of corporate consolidation and price caps lobbied for by large milk processors.

Now, with bird flu spreading through dairy herds across the country and recent updates to how milk is priced taking effect this year, Cochren said small dairy farmers are facing a crisis. 

Most of the nation’s dairy farmers are paid through the Federal Milk Marketing Order, FMMO, a nearly 90-year-old pricing formula that creates daily minimum prices a milk processor can pay a dairy farmer for their milk.

Fluid milk is a highly perishable and time-sensitive product that needs to be processed quickly before expiring, which processors could use to their advantage in buying milk, according to a 2017 report by the Congressional Research Service. The FMMO was created in 1937 to prevent those unfair buying practices.

The FMMO also establishes standards for how much money is taken from a farmer’s pay to turn milk into products such as cheese, yogurt and butter, often referred to as a “make allowance.”

In 2023, the National Milk Producers Federation, an industry group based in Arlington, Virginia, petitioned the U.S. Department of Agriculture to “modernize” the pricing system to allow processors to collect more money from dairy farmers. 

On Jan. 16, the USDA approved an increase to the “make allowances” for every dairy product, with the largest increase seen in powdered milk products. The changes go into effect on June 1.

The USDA said dairy farmers should see an average increase of 26 cents per 100 pounds of milk sold.

“There are lots of changes that will have an impact on the price of milk,” said Matt Herrick, executive vice president of the International Dairy Foods Association. “Some of those benefit farmers. Some of them benefit other individuals in the supply chain. But the goal is to ensure that the changes do in the end benefit farmers.”

However, dairy farmers have been critical of the changes, saying the small increases don’t account for their rising costs and industry consolidation. 

Lynne McBride, executive director of California Dairy Campaign, a dairy advocacy organization, said farmers face a perfect storm of financial hardship as milk production declines and dairy processors can pay less for it. 

“It’s going to get worse because of this increase in the make allowance — the amount that dairy farmers pay — and then our milk production is not going to align as well with market demand,” McBride said. 

McBride said that the rise in “make allowances” mainly benefits dairy processors, not farmers. 

“Historically, the cost of production for dairy farmers has not been included in our milk pricing formulas,” she said.

The cost of operating a dairy farm in the U.S. has nearly doubled in the last decade, while the price farmers receive for their milk has fallen 15% in the same time frame, according to an analysis of USDA data.

Zippy Duvall, president of the American Farm Bureau Foundation, said he agreed with some components of the final order but believed the changes would largely undermine dairy farmers.

“The positive changes that will come as a result of these reforms will not be uniform for dairy farmers across the country and will be greatly offset by large, unjustified increases in ‘make allowances,’” he said in a statement. 

Price controls keep dairy prices low for consumers but squeeze farmers

While federal controls help keep retail milk prices low — milk prices increased just 2% last year — the poultry industry has increased prices to mitigate its own losses from bird flu. 

When a chicken tests positive for the bird flu, its entire flock is killed. As of the beginning of the year, more than 134 million birds have been killed in the U.S., with the majority being commercial egg layers.

When an entire flock of egg-laying birds is killed, it can take months for a farm to become fully operational again, creating a shortage that contributed to a 65% increase in retail egg prices last year. 

Some dairy cows have died from the virus, but many are quarantined, leaving the rest of the herd to produce milk. 

When a herd tests positive for the virus, it is quarantined for a minimum of 60 days. After that period, and provided there are no clinical signs — fever, drops in milk production, or respiratory problems — the quarantine is lifted.

California dairies, after being released from quarantine, are then placed on a surveillance list by the California Department of Food and Agriculture and flagged for weekly monitoring by their dairy plant as a part of routine operations. 

The agency urges dairy operators to maintain high biosecurity and provide personal protective equipment, or PPE, to farmworkers who are in direct contact with raw milk during the milking process. Contact with raw milk is one of the most common ways for humans to become infected with bird flu.

Nearly every case of bird flu in humans in California is directly linked to dairy workers. The state’s dairy industry, as of January, comprises more than half of the country’s 68 human cases, according to the Centers for Disease Control. 

The state’s agriculture department is one of many in the U.S. that has left the handling of PPE distribution to local agencies, making access to PPE mixed across major dairy states.

California Gov. Gavin Newsom issued an emergency proclamation in December 2024 that gives local and state agencies more flexibility around staffing, contracting and responding to the virus, from testing to PPE response. 

“This proclamation is a targeted action to ensure government agencies have the resources and flexibility they need to respond quickly to this outbreak,” Newsom, a Democrat, said in a statement. 

Anja Raudabaugh, CEO of Western United Dairies, a trade organization representing hundreds of California dairy producers, said California dairies have fallen short on production contracts with milk processing companies and have paid steep costs to replace cows killed by the virus.

Even when a milking cow comes through quarantine and is virus-free, long-term effects are still present in dairies.

“Dairies haven’t seen the production come back to where it was,” she said. 

California has been a hotbed for bird flu outbreaks in dairy cattle herds since August 2024, with hundreds more cases than other states. 

The state’s milk production declined 9% last year — the state’s largest dip in more than 20 years — with major drops occurring in the late summer, near the time reports of infected dairy cattle herds began, according to an analysis by Investigate Midwest. 

When milk production drops, dairy farmers face a tough choice: wait out the sickness or spend thousands on replacing sick cattle. All the while, a drop in milk production means less money in their checks.

McBride, with the California Dairy Campaign, said the recent federal price control changes did not account for the rising cost of farming. Now with bird flu moving through dairy herds, farmers are seeing increased costs to replace sick cattle and pay for veterinary visits and medicine.

“When you continue to ramp up these allowances and take from farmers who don't have their cost of production covered, it's just going to lead to a greater attrition of dairy farmers around the country,” she said.

Raudabaugh said the federal milk pricing rules are designed to protect consumers from seeing inflationary price changes in dairy products. 

"(Egg prices) are subject to the law of supply and demand, and that is not the case for dairy products,” Raudabaugh said.

When the first bird flu case at a California dairy farm was announced on Aug. 29, 2024,  there were roughly 200 total cases in dairy cattle nationwide.

Two months later, California alone surpassed that number.

Since late August, more than 700 dairy herds in California have been infected with bird flu. 

“You do not want this virus on your farm — it is catastrophic,” said Raudabaugh.

Dairy processors celebrate rules update

The new federal milk rates came after major dairy industry groups petitioned the USDA to consider an increase.

Over a period of 49 days in 2023, dairy groups met in Carmela, Indiana, and presented evidence and proposals to the USDA for what changes should occur.

The National Milk Producers Federation, which had nearly $60 million in annual revenue in 2023, said increasing allowances would offer manufacturers some cost relief but also keep consumer prices low, according to its statement to the USDA. 

“To craft a solution that benefited the dairy industry and all dairy farmers – many of whom are invested in manufacturing plants through their cooperatives – a change in the make allowance was necessary and appropriate,” NMPF spokesperson Alan Bjerga said in a statement provided to Investigate Midwest. 

Dairy Farmers of America, the country’s largest milk co-op that operates more than 80 processing plants nationwide, said it agreed with the make allowance increases set by the federation.

The co-op and the federation have close ties as three members of the federation’s executive committee work for DFA, including chairman Randy Mooney.

However, not all of the industry is aligned on these changes. 

In a briefing sent to the USDA, Mark Lamers, president of Lamers Dairy, a Wisconsin milk processor who sells across the Midwest, said proposals submitted by the National Milk Producers Federation would try and squeeze more money out of the fluid milk market.

“If NMPF members want their farmers to get more money, all they must do is pay them more, " Lamers wrote. 

The International Dairy Foods Association, a D.C. lobbying group representing dairy product and processing companies, wrote in a May 2023 letter that the changes in “make allowances” were necessary to reflect actual processing costs.

Over $6 million in lobbying was spent between the International Dairy Foods Association and the National Milk Producers Federation from 2023 to 2024, when the FMMO was being updated and drafted, according to federal lobbying disclosures. However, dairy industry groups are not allowed to lobby the agency about FMMO updates because it is a legal proceeding.

Bjerga noted that the federation’s role in the marketing order hearing and update was a costly affair. “This was a major effort that encompassed all of our members, the top legal and economic minds in our industry, and numerous industry stakeholders. It would be shocking if that didn’t come at a significant expense,” he said. 

Investigate Midwest reached out multiple times to major dairy processing companies with plants in California and across the country, such as Saputo, Dairy Farmers of America and California Dairies, Inc., and did not receive a response.

Other states hit by bird flu also see milk declines

California isn’t alone in its historic decline. New Mexico, a state that produced more than 6 billion pounds of milk in 2023, also experienced its lowest level of milk production in two decades in November of last year, according to an Investigate Midwest analysis.

McBride said the high bird flu count in California could be because it has been testing more than other states, combined with the state’s dominant place in the nation’s dairy industry. 

A California Department of Food and Agriculture spokesperson said a high concentration of dairies in close proximity is a probable cause, but research is still ongoing to determine other factors.

Amanda Starbuck, research director for the environmental advocacy organization Food & Water Watch, said the country’s reliance on consolidated food production has exacerbated the continued outbreaks in California. 

“As bird flu spreads rapidly through California’s mega-dairies, it is more obvious than ever that fixing this system will require moving off factory farms,” Starbuck told Investigate Midwest in a statement.

While California saw large drops in milk production, other states with bird flu cases in dairies saw an increase in their annual production.

Texas, the first state to confirm a bird flu outbreak in dairy cattle, saw an unusual increase in annual milk production by the end of last year. The state had 27 cases of bird flu in dairy cattle herds last year.

Darren Turley, executive director of the trade organization Texas Association of Dairymen, said the state has been able to pull through on its milk production because it was one of the first to have major outbreaks, which started in March of 2024, and had time to recover by the end of the year. 

“Nobody ever dreamed it would show up in dairy cows,” he said.

Like other states hit by the outbreak, producers had to decide between replacing parts of the herd or waiting for infected cattle to get better, Turley said.

From March to June, Texas saw a 4% drop in production as it dealt with bird flu outbreaks. Since then, the state’s dairy production increased by 6% overall.

Turley said he expects high production numbers this year, barring a resurgence of the virus. 

“We're hoping that we ran our course and it's not here,” he said. 

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