While small dairy farms close, this mega-dairy is shipping milk to China

In 2006, Stephanie Doane moved from the San Francisco Bay Area to a small, rural community in the high desert of Nevada.

Smith Valley seemed like the perfect place for the photographer to write and capture beauty with her lens and then later retire. An untamed river winds through the valley, carpeted with wind-swept grasses, trees, and flowering bushes. About 85 miles southeast of Reno, it’s home to deer and sage grouse. In the distance, the Sierra Mountains and other snow-capped mountain ranges frame the view.

Living in Smith Valley is like stepping back in time. There are no Starbucks, Costcos, or Walmarts. Residents have to drive 30 miles to shop. Fields of alfalfa stretch across the valley and ranchers tend small herds of cattle and sheep. In the morning, roosters crow.

“My wife describes it as coming to Brigadoon — a magical place in Scotland where life stands still,” said Jim Kinninger, another retiree who moved to Smith Valley about 15 years ago from San Luis Obispo, California. “The only traffic is a herd of cattle in the road,” he added, “or ranchers parked in the middle of the street talking.”

But that’s beginning to change.

Four years ago, a large dairy cooperative built a state-of-the-art dry milk production plant in Fallon, Nevada, about 80 miles from Smith Valley. The plant was designed for exports, mainly to China. It’s part of a strategy by the Dairy Farmers of America, a cooperative of 13,000 members, to keep the industry growing.

“We believe the future of the US industry is [in exports],” said Jay Waldvogel, the cooperative’s senior vice president of strategy.

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But the growth in sales to China has come with a price at home. As plants geared toward foreign sales like the one in Fallon have appeared, the dairies feeding them have expanded their herds. A dairy big enough to be considered a mega operation — it now has 8,000 cows — moved from California to Smith Valley in 2014. With it came odor, flies, dust, noise, and glaring industrial lights at night. And while the dairy produced for export has been sold by some as a boon for rural areas, it also has the potential to divide communities.

How a plant changes a landscape

“The lights are so bright that people have to have blackout blinds on windows,” Doane, who lives five miles from the farm, said during a recent phone conversation. “I stepped out my door and it smelled like a sewer right now,” she added.

Nevada, like the rest of the country, protects the right to farm in a statute that shields farmers from nuisance lawsuits. Nevertheless, Smith Valley Dairy still has to abide by water and waste regulations under Nevada’s Division of Environmental Protection, keeping waste and manure contained to its site. But it faces no special use permits, despite its designation as a concentrated animal feeding operation.

Agriculture interests carry political weight in Nevada. One of the reasons that Dairy Farmers of America picked Fallon for its first export plant was for policy and financial considerations.

According to the coop’s fact sheet about Fallon, “Nevada is an ideal location for dairy farmers looking to start or expand an operation. It’s got ample water, low feed costs, state and local incentive programs, no corporate or personal income taxes, and agriculture-friendly regulations.”

And yet, beyond benefiting the plant’s owners, there’s little evidence that the plant has had a positive economic impact on the area. In Fallon, farming and fishing only account for 2 percent of the economy and 1.5 percent of the jobs. If it’s reflective of the rest of the country, the jobs that exist are more than 50 percent likely to be held by immigrants.

Meanwhile, the lax tax environment has also attracted retirees like Doane. And many of them don’t want to live next to mega-operations like Smith Valley Dairy.

Doane and other locals, including several who spoke to Civil Eats off the record, have formed a group, Save Our Smith Valley, or SOS, and created a Facebook group. The nonprofit, which Doane joined, has held meetings to rally support against the dairy. They’ve also tried to get the state to block the plant, appealing to the Nevada State Environmental Commission to challenge the dairy’s wastewater discharge permit. They’ve even filed a lawsuit.

They’ve faced an uphill battle.

A growing thirst for US dairy

Traditionally, Chinese people have eaten little dairy. But in recent decades, the country’s appetite for animal protein has grown. That’s led to increased US beef exports to China. It also prompted a Chinese holding company to buy a leading US pork producer, Smithfield Foods, in 2013 for $4.7 billion.

That purchase sparked worries in the US about the country’s food security and safety, stemming, in part, from a dairy scandal that embroiled Chinese producers.

In 2008, six babies died and 300,000 were sickened in China by tainted infant formula. It contained melamine, normally used to make plastics, concrete, or fire-retardant additives. With a high nitrogen content, melamine masquerades as protein when added to milk products. Common tests measure nitrogen to gauge protein content.

To meet the growing demand for infant formula in China, middlemen watered down thousands of gallons of milk to stretch the supply and then bulked it up with melamine to make it appear as if it had more protein. Melamine is not meant to be eaten. It’s not as harmful to adults, but poses a big threat to children, causing bladder and kidney stones and bladder cancer.

The scandal caused widespread outrage, both at home and abroad, deepening doubts about the safety of Chinese food. The government cracked down, executed two men, and convicted more than 20 others. It also tightened regulation of the industry.

The scandal eroded people’s trust in China’s dairy industry and created an opening for US dairy.

With more than 1 billion people, China represents a big opportunity for the industry. In 2017, the US dairy industry sold $577 million in dairy products to China, nearly a 50 percent increase over the previous year. In terms of volume, exports rose 26 percent, making China the industry’s second-biggest market. Exports to Mexico, the top market, barely rose 2 percent.

Add to that the fact that Tom Vilsack, the former agriculture secretary under President Obama, joined the US Dairy Export Council as president and CEO in 2017, boosting the industry’s profile abroad.

Vilsack, who was also a two-term Iowa governor, has spoken widely about the health of rural economies and said he took the position at the US Dairy Export Council because it would give him “the chance to continue [his] work in advocacy for farmers and agriculture generally, and for rural America.” He sees expanded agricultural exports as a way to “aid large farms and ranches.”

“In an effort to meet the demand of 18 million children being born every year in the country, the Chinese began to look at ways they could complement and supplement their own dairy industry through exports,” Vilsack told Civil Eats.

That demand coincided with an effort in the US to seek dairy export markets. As farms have consolidated, the size of the average dairy operation has also grown considerably. The number of dairy farms dropped by 88 percent between 1970 and 2006, and the industry continues to hemorrhage small producers, while total milk production rose and average milk production per farm increased by a magnitude of 12.

“About 15 years ago, the dairy industry in the US was primarily focused on the domestic market,” Vilsack said. “But it became clear that the dairy industry was going to produce more product … So the industry began to look at potential export markets.”

US dairy producers built a relationship with Mexico and Canada, its partners in the North American Free Trade Agreement. China, with its rising middle class and concerns over the safety of domestic milk, was an obvious market.

Related: After months of being targeted by Trump, Canadian dairy farmers angry at terms of trade deal

The European Union is currently the biggest dairy exporter to China, according to the US Department of Agriculture, with a share of nearly 50 percent. New Zealand follows, with a 33 percent share of the market. Australia has nearly 7 percent, followed by 6 percent for the US.

Milk powder, which is easy to ship and can be used for beverages, infant formula and other items, accounts for the biggest share of China’s dairy imports, according to the US Dairy Export Council. That’s where the Dairy Farmers of America comes in. The group invested nearly $100 million in the Fallon plant, which turns 1.5 million pounds of milk daily into 250,000 pounds of whole milk powder, said Waldvogel.

“Quite a bit goes to China,” he said. The plant also ships to Mexico, other parts of Latin America, and Southeast Asia. “Everything we make in Fallon right now has a home overseas.”

The Fallon plant was the coop’s first experiment in building a plant solely for export. “The intent was to get a foot in the water for exports,” Waldvogel said. “The domestic milk production growth is about twice the rate of domestic consumption growth, which means the US has to become a better exporter.”

When the Fallon plant proved a success, Dairy Farmers of America built a $200 million milk powder plant in Garden City, Kansas, which was completed last year. It can process 4 million pounds of milk a day, turning it into about 500,000 pounds of dry whole milk. The plant produces both whole and skim milk powder.

Much of the production has gone to countries in the Southern Hemisphere, where the US has long shipped dairy products. The plant is still working on meeting the specifications required to sell to customers in China. “You get the protein and fat exactly the way the customer wants it and then you dry it down,” Waldvogel said.

To make its products, the dairy industry separates cow’s milk into cream and skim milk components and then recombines them in various proportions to achieve the desired fat content. Even whole milk is made that way. Leftover skim milk would have to be dumped if not used. When dried, it’s easily shipped to China, for example.

Milk powder exports make sense in a long-term business plan, said Andrew Novakovic, an agricultural economist at Cornell University in New York. They open up new markets by serving as an introduction to a suite of dairy products, he said, like cheese, ice cream and yogurt, which are higher-value items.

“The powder plants are subject to considerable scale economies,” Novakovic said. “If you are going to build one, go big.”

Environmental concerns

Big is precisely the problem with Smith Valley Dairy, the retirees say. The 8,000 cows produce a lot of milk, but they also excrete over 30,000 tons of manure annually. Seepage from manure lagoons at mega-dairies can contaminate groundwater, kill fish, and even force the closure of bodies of water like Tillamook Bay in Oregon. Last year, nearly 200,000 gallons of liquid manure escaped from a storage tank at a dairy that sells to the Tillamook County Creamery Association, which makes Tillamook cheese. The waste flowed across several people’s properties to a slough, ending up in a river that carried it to the bay. Oregon officials shut the bay to fishing for a week and fined the dairy nearly $20,000.

Smith Valley Dairy has not been cited for spillage, but some of the residents still worry about their water quality.

“We’ve tried to get the [Nevada Division of Environmental Protection] to monitor more closely,” Doane said. “There’s a single aquifer for the whole valley — we’re all on wells. If anything goes down into the groundwater and pollutes it, we’re done.”

Opponents said they tried to contact the dairy but were met with silence.

Dirk Vlot, the dairy’s manager, appealed to locals when the dairy opened by co-publishing an op-ed in a local newspaper. It said the dairy was environmentally responsible, took care of its animals, and tried to address local concerns. It read in part:

For example, we’ve minimized the brightness of the required lighting on our property to prevent disruption to our neighbors, and we work with environmental engineers to determine best practices for waste disposal and manure management. … We are installing monitoring wells, a state-of-the-art manure separator, and a flush system on concrete — all to be more environmentally friendly and protect local air and water quality.

When contacted by Civil Eats, Cole Vlot, an owner, declined to elaborate.

“I’m not sure if I feel comfortable giving any information,” Vlot said. “Dairymen are demonized.”

Business is not good right now, he said, with the Trump administration’s trade war with China. In April, the US started imposing $34 billion worth of tariffs on Chinese goods. China responded with $34 billion worth of tariffs against US imports. They include double-digit tariffs against whole milk and skim milk powder, the largest US dairy export to China.

The Trump administration taxed another $16 billion in Chinese goods in August and recently announced another $200 billion worth of tariffs on Chinese goods. China responded — with another $60 billion in tariffs against the US.

Vilsack recently visited China to make sure that “people understand that the US dairy industry is committed to a relationship with China, Chinese consumers and Chinese industry.”

“We see this as a long-term relationship that we hope grows over time,” Vilsack said, “notwithstanding the challenges that our two countries currently have.”

No one knows how the trade war will turn out, but if it lasts a long time, it could affect dairy farmers, Vilsack told Civil Eats.

“I’m not worried because the dairy exports for the first six months of this year reached record levels — we had the best months we’ve ever had,” Vilsack said. “But I do worry about our farmers.” Those on the edge might not survive the trade war, he said.

The export council has looked to other countries to diversify exports. In the meantime, the opponents to Smith Valley Dairy have taken their case to court.

Fourteen residents filed a complaint in the Third Judicial District Court of Lyon County against the dairy and Vlot. Seeking an unspecified amount of damages, the complaint says the operation continues to be a nuisance, with “offensive odors, emissions, particulate matter, lights, noise and in some cases flies,” causing “substantial” annoyance.

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The suit says the county has repeatedly cited the dairy for violating its outdoor lighting code and that the US Food and Drug Administration noted violations of pest control in 2016. An FDA inspection report Civil Eats obtained through a public record request cited the dairy for overuse of “an approved human or animal drug above an established safe level, safe concentration or tolerance.” The drug, sulfamethoxazole, is an antibiotic that’s used to treat or prevent infections.

Residents know they won’t shut the existing dairy. But they’re not giving up the fight against more mega-dairies moving in. A post in June on their Facebook page called for support: “Who has the most at stake? People trying to earn a living in agriculture, using methods that are proving to be unsafe for the environment and the people who live in the neighborhood, or the individuals whose lives are being changed against their will, who were living in the area before the unsafe farming practices were implemented?”

The two sides have built their cases and await their day in court when residents hope to sway a jury to support their complaints against Smith Valley.

The trial is scheduled for early next year.