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Dairy diversification: A look at your options

Tamara Scully for Progressive Dairyman Published on 11 September 2017
Diary diversification

Dairy farmers today are looking for options to diversify the farm income stream. With labor costs and milk pricing often squeezing most of the profitability from the dairy, staying in business can mean finding new ways to utilize the skills and resources you already have.

“Generally, pursuing value-added alternative markets, or niche markets ... is not a silver bullet to fix a failing situation,” says Tom Kriegl, University of Wisconsin Center for Dairy Profitability. “The rule of thumb is: Development of a niche market or value-added component often requires time, effort and resources greater than or equal to the production side.”

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While many dairies do opt to pursue the creamery route, the investment and risk are large. Equipment, buildings and infrastructure, along with food safety regulations, marketing venues and legal considerations, all must be addressed.

A market analysis, formal business plan and a lot of cooperation among family members and with outside parties is a must. And the revenue may not initially be as high as anticipated. Other, less intensive diversification options may be a better fit for many dairy farms.

“I talk to people about how they can use the skills they have to farm successfully,” says Matt Brechwald, whose Off-Farm Income podcast, www.offincome.com, is broadcast three times per week and complements his work as an Idaho-based agricultural entrepreneurship coach.

“When you go and you farm, you need to develop a certain skill set – and a ‘can do’ attitude – to be able to be successful. People can use the same skill set to start off-farm income instead of a day job.”

Instead of working a non-farm job, or devoting a large amount of resources to developing a creamery business, Brechwald – like Kriegl – recommends dairy farmers find a low-cost way to utilize the skills, the equipment and the resources on hand and to provide some needed service to the community.

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“The good news is: In most of the business ideas I deal with, farmers can get into them with very little overhead,” Brechwald says, and for the most part, they don’t even require a formalized business plan. “People who do well have an idea, know the area, develop the business. And it takes root organically.”

Low-risk income

For the most part, Wisconsin’s conventional small dairy farmers knew the drill: “Focus entirely on production, and you are guaranteed a market,” Kriegl says. But during the 2009-2010 period, there was a change in the milk market: It wasn’t reliable. This was an anomaly in a region where bulk tank sales “may not be the price you want, but the market was always there.”

By 2012, cost of production analysis for these Wisconsin dairy farms was showing the typical small confinement dairy – one that raises its own replacements and as much feed as they can for the herd – was now generating farm income from markets other than milk sales. Dairy farmers had responded to the milk market changes.

Many jumped into the local ethanol market. By culling harder, they found just a few acres to plant to corn, which was selling at $6 per bushel. This type of low-risk diversification allowed the dairy to keep operating as normal but channeled some resources – land, time, labor, equipment – from the milking herd to other production areas, like crops.

“A lot of small farmers actually did diversify. Cash crop sales are still higher today than the normal amount,” Kriegl says. “There’s not much risk in doing this as farmers already had equipment or custom operator arrangements, so it was not a big deal to add 5 to 20 acres.”

Another example of this type of low-investment channeling of existing resources has been selling sweet corn. Direct-market sweet corn sales can generate income of about $6 per dozen. And if the sweet corn crop isn’t marketable as such, it can be used for silage.

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“Try and look at what kind of things you do and already have some resources for, or experience with, that you can capitalize on without a great deal of risk,” Kriegl says. “It just doesn’t take that much extra time, talent or resources.”

Other options Brechwald has seen include repurposing dairy byproducts. Depending on how the dairy handles manure, these ventures may not require much additional investment. Manure solids can be made into bedding, and local FFA or 4-H’ers are often a reliable target market. Selling composted manure as bagged fertilizer for the home gardener can bring in extra money.

David Balbian, central New York dairy specialist with Cornell Cooperative Extension, has seen a variety of ways in which dairy farmers have attempted to diversify without much risk or investment. In his neck of the woods, success seems elusive.

“Some have made money in the purebred business, marketing high-end cattle. However, I believe very few have actually made money in this venture,” Balbian says. “Some have sold replacement heifers, but that is a breakeven venture at best. Others have boarded heifers for others. Again, in the end not likely to be a profitable venture. No easy answers here. If there was, everyone would be doing it.”

Many factors are going to come into play, including community demographics, the local job market, competition and the ability to get the word out and build your brand. Success in these ventures requires determining whether there is any demand in your area, and “finding out how to connect with the community,” Brechwald says.

Assessing your personality also plays a role in determining what type of alternative farm business might best suit your needs. If you are a people person, options include teaching a skill, offering dairy tours, hosting a farm camp or running a “farm stay” for overnight guests.

While liability insurance and any required licensing may need to be obtained to rent out a room in the farmhouse or run a day camp on the dairy, the bigger hurdle may be knowing whether you – or any other family members – really have the personality to enjoy this type of customer contact.

Others may prefer to pursue options that require less ongoing public interaction. They may simply continue to do what they already do – like tilling a field – but doing it for hire. Use the equipment or skill you have, and put it to work to perform jobs for others.

Building the brand

Not even the best business concept will succeed without some targeted marketing. Don’t try to overtly sell your service or product, but find opportunities to provide free, useful information to your target audience, Brechwald advises.

“The brand-building strategy is multi-faceted. Word-of-mouth marketing is a real big deal. Social media is a big deal,” Brechwald says. “The ‘secret sauce’ is the bunch of people with a common interest to serve. Get on the internet and target customers. Take the time to tell your story. Provide some form of useful information for free. Be the go-to guy. Be proactive.”

Utilizing your existing skill set, interests and available resources to diversify your dairy income stream can provide additional, reliable income without large investments, formalized business plans or risky business ventures. It takes a bit of creativity, some advanced planning and the ability to find a concept that fits your skills while fulfilling unmet needs of others in the community.  end mark

PHOTO: Compilation of images from Thinkstock.

Tamara Scully, a freelance writer based in northwestern New Jersey, specializes in agricultural and food system topics.

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