Fueled by economic forces, dairy sector policies, technological progress, and strict environmental regulations the U.S. dairy industry is consolidating into large, confined animal feedlot operations (CAFOs) and concentrating in a few localized areas. These structural changes produced a disproportionate impact on the local areas, exacerbating local dairy waste pollution problems because of introducing manure nutrients at a rate far in excess of environmental assimilative capacity. The national, regional, and state-level trends in the dairy industry are examined, with the objective of identifying forces that are responsible for this structural change. The structural change will create winners and losers among traditional dairy farms, rural communities, and environmental integrity. Therefore, public policy has an important role to play in balancing the cost of a changing dairy industry with the benefits to society at large from a more economically efficient and environmentally sound industry.