What Will Dairy Farm Labor Cost?

Dairies need to be able to manage labor costs and overall cost of production.

Across the United States, annualized growth in wages for 2016-2021 has been 3.6% and is forecasted to be 2.4% for 2021 (1). However, changes in various state labor laws as well as national discussions about increasing the minimum wage could result in a short-term trend for higher labor costs.

For example, legislation enacted in New York (Article 19 of the New York State Labor Law) provides for scaled increases in the minimum wage over time until the minimum reaches $15/hour (2). Additionally, there are provisions for overtime pay above 60 hours and limited exclusions for family employees. Similar state laws in California provide for minimum wage above the national level as well as overtime pay for more than 8.5 hours in a day or 45 hours in a work week (3). Other states have introduced wage and worker legislation and there is a trend for higher minimum wages and overtime pay on dairies nationwide. This comes at a time when there is much discussion nationally about increasing minimum wage above the current $7.25. Currently, many states have set minimum wages higher than the national requirement (4). However, Pennsylvania is not a state that has a minimum wage higher than national standards.

While there is a great deal of variability in minimum wage rates from state to state, an even greater variation may occur within states due to local demands for labor and microenvironments that create competition for workers and raise wage rates needed to hire and retain qualified workers. A 2015 Michigan State Extension survey (5) found that a majority of the skilled dairy workers in the survey were paid wages ranging from $10-15 per hour. The rate of pay for dairy workers is likely highly variable depending on geographic location and competition in the local labor market for the dairy. Regardless, the trend for increasing wage rates is likely to create more competition and higher wage costs across several states and geographies. The overall impact of this increasing wage rate trend will be impacted by state labor laws and ultimately any changes in minimum wage at the national level.

When wage rate increases due to changes at either the state or federal level, on-farm impacts are multifaceted. Most obvious is the general increase in labor cost, but other not so obvious changes may include a compression of wage rates across the workforce and less focus on bonuses or incentives. Compression of

wage rates across the workforce can be a concern with the gap between more senior workers and newer workers narrowing with changing wage rates. This can have a negative impact on longer term workers and lead to increased turnover rates. Additionally, with greater wage rate increases, there are less funds available for targeted performance bonuses or incentives to reward the best performers in the workforce. Like wage compression issues, lack of monetary incentives for outstanding performance can be cause for turnover. With the trend for increasing cost of wages and implementation of scaled up minimum wages, there is concern for dairies to be able to manage labor costs and overall cost of production.

After feed costs, labor costs may be the next largest expense on the dairy depending on the situation. Managing labor costs and maintaining labor efficiency are key drivers in net cost of production and overall profitability. Deming, et al. (6) found through modeling research, farms that were more labor efficient were also more profitable. This research focused on seasonal calving and the use of grazing systems, so results may not be widely applicable to all types of dairy farm businesses. Likewise, Ferrazza et al. (7) found that labor efficiency was positively correlated with lower cost of production and higher profitability on a group of Brazilian dairy farms. With changing regulations about minimum pay rate and overtime pay considerations, dairy managers are looking harder at ways to make the best use of workers’ time and improve the

efficiency of labor on the dairy. With increased labor costs, tasks should be prioritized to ensure that time is spent on activities that have the highest return on investment. Questions like “Is it more important to have an extra feed push up or to have stalls groomed more often?” or “Can calf feeding be more automated to save on labor costs?” become ones where dairies must evaluate which tasks are highest priority. Additionally, key performance indicators for worker efficiency like milk shipped per worker, milk harvested per milking stall in the parlor and others become more important to monitor and manage. Having a well-trained team of workers that communicate well, follow standard operating procedures, and attend to details for consistent feeding, milk and animal care will be even more critical in the future.

References

1. IBISWorld.com, “Dairy Farms in the US – Wage Statistics 2005–2026.” Accessed March 12, 2021.
2. U.S. Department of Labor, “Wage Order for Farm Workers.” Accessed March 12, 2021.
3. National Dairy Farm Program, “Human Resources Legal Fact Sheet: California.” Accessed March 12, 2021.
4. U.S. Department of Labor, Wage and Hour Division, “Consolidated Minimum Wage Table.” Accessed March 12, 2021.
5. Michigan State University Product Center, “Results of the Dairy Employment Survey.” Accessed March 12, 2021.
6. Deming, J., et al. “An Examination of the Effects of Labor Efficiency on the Profitability of Grass-Based, Seasonal-Calving Dairy Farms.” Journal of Dairy Science, Elsevier, 27 June 2019.
7. Ferrazza, Rodrigo de, et al. “Association between Technical and Economic Performance Indexes and Dairy Farm Profitability.” Revista Brasileira De Zootecnia, vol. 49, 2020, doi:10.37496/rbz4920180116.