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The other 3 percent: Corporate-owned U.S. dairies

Jennifer Janak Published on 06 November 2014

Family-run dairy farms account for nearly 97 percent of the total dairy farms in the U.S., producing 85 percent of all milk products sold, according to the USDA.

What makes up the remaining 3 percent of dairy farms? Corporate-owned dairy farms. One of those corporations operates in the southeast corner of the country.

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American Dairyco, headquartered in Boulder, Colorado, is a jointly owned business between Castlelake, L.P. and Colorado Financial Holdings that operates four dairy farms located in Mississippi, Georgia and Florida ranging in size from 1,400 to 3,600 cows.

As part of Colorado Financial Holdings’ standard operating procedures, they research agricultural assets to see where they might be able to build a portfolio around those estates. Four years ago, the two investors came upon five dairies in the South they could purchase out of bankruptcy, that would soon form American Dairyco.

“The dairy industry has always been of interest to us. We saw this as a clear opportunity to get involved,” Don Panter, CEO of American Dairyco, says.

Although receiving a Ph.D. in plant science breeding and genetics, Panter’s career path has led him to become involved in the dairy industry. After many years of working with private equity firms, he joined the company in 2012.

Both investing parties focus their time on the successful management and financial standing of the enterprise. In order to do so, a board of directors and leadership team helps oversee any decisions made on the farms. Panter guides the leadership team along with Bruce Hageman, the company’s director of operations.

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“Anything related to activity on the farms come under my purview,” Hageman says. “That could include environmental compliance, capital expenditures and investments, profitability and decisions made on each individual farm.”

Similar to large family-owned dairies in the U.S., each of American Dairyco’s farms is overseen by a manager and assistant manager. Because the farms in Florida are in such close proximity to each other, a team of managers supervises the two operations as one entity.

While the owners of the operations may rarely make a visit to the farms, each employee is dedicated to knowing their responsibilities and doing their jobs in a productive manner as if their employers were on-site, watching their every move.

“We have organizational charts so that people know whom they report to, all the way down to the milkers and rank-and-file employees,” Hageman says. “Hopefully, our employees are able to look at these charts and recognize opportunities for advancement potential if they were to consider making a lifetime career within our business.”

Employee involvement is just one aspect of the company that Panter and Hageman are proud of. They openly solicit suggestions from the management teams when looking to make investments on the farms and in the business as a whole.

“We really involve our managers, not only in the operation of these dairies, but also for strategic positioning and depend on them for suggestions and recommendations,” Hageman says.

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Panter adds that the managers are always generating ideas for ways in which they can save money, improve cow comfort and ultimately improve profitability.

Once a suggestion has been made, a deeply involved and diligent process begins. First, the managers and Hageman discuss the possible alternatives, justifiable reasons for the project and focus on the pros and cons of the investment.

The next step is for Panter to evaluate the proposal with financial analysts that help determine the return on investment (ROI) of the proposed project. During this time, they weigh the value of the project compared to other ways the company could invest their money.

“It’s determining which ones make the most sense at this specific time,” Panter says. “Some projects are more important than others; in other words, if you don’t do the project, you will have to shut the dairy down.”

Today, the corporate business has made several capital investments on each dairy to continue expanding and making them more efficient.

Most recently, sand lanes were installed at the Georgia operation, which allows the farm to recapture and recycle the sand once used for bedding. American Dairyco expects to see an excellent ROI of a 14-month payback.

A similar installment is in the works at one of the Florida dairies.

“[The sand lanes] help us reduce costs and, ultimately, keep sand out of our manure lagoon,” Hageman says. “It really has a double benefit to the company.”

Also in the works is a state-of-the-art maternity barn in Georgia, their largest dairy. This project will focus on the ability to better manage their maternity, fresh and sick cows all under one roof while improving cow comfort and profitability.

Unfortunately, not all investments have gone as planned for this enterprise.

A year ago, the business invested in forage equipment at the Mississippi dairy in hopes to harvest fields that are near the farm. However, the fields were not managed properly, resulting in poor-quality forage that American Dairyco chose not to use as feed. Eventually, they will see a ROI for this project, but it hasn’t come yet.

“It’s all been a learning experience for us. The key is to make a decision that will have a strategic or economic benefit for the farm,” says Hageman.

While the ownership of American Dairyco may be different from traditional family farms, both Hageman and Panter assure that their success is not from their dairies’ corporate-owned structure but rather from sound financial decisions and careful management practices by all those involved.

For the business, the two investors are interested in the assets of their dairies and what is being accomplished on a day-to-day basis. They frequently talk about the costs, revenues and business metrics to be able to measure their sales against others in the industry, strategies and reasons to expand and strategies for risk management.

American Dairyco utilizes their investors’ other non-dairy portfolios to determine the future of the markets, which, in their opinion, has been a huge advantage.

“We have a lot of experience outside of the dairy industry,” Panter says. “While that could be a setback, we view it as a great advantage. Many times we can see things coming because other investments are starting to feel the pain [of the economy] and we work with that before it hits us.”

Setting business goals and roadmaps with the stakeholders, watching the markets and researching potential investments are all part of American Dairyco’s strategic business plan, which they refer to as “blocking and tackling.”

Hageman uses the game of football to better explain this method of business planning.

“In the game, Little League guys have to block and tackle, and so do NFL players and everyone in between,” he says. “If you don’t do that, you’re not going to be successful, whether you’re big or small, professional or not.”

Blocking and tackling is a simple approach, one that Panter says is available to any dairy farm.

“As a dairy, we’re not all that unique from others across the country,” Panter stresses. “We may have a different business structure, but I think it’s a structure that is adaptable for anyone in the industry.” PD

Jennifer Janak is a 2014 Progressive Dairyman editorial intern.

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