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From plan to profit: Partnering with financial institutions in the robot-buying process

Alfred Kamps Published on 11 June 2014

The transition into robotic milking requires extensive research. While some producers make the decision within half a year, and others take 10 years, robotic milking is a significant investment in which there are many components to consider. To get all of these puzzle pieces to fit perfectly, proper planning is essential.

A main component that many producers sometimes underestimate is the financial planning associated with securing financing for investing in a robotic milking system. Before the economic recession, local banks were willing to lend money to producers in good standing on the promise of a handshake.

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Today, in many cases the review of the loan application is not done locally, and the whole process takes much longer. It is very important to start securing the financing early in the process.

Let’s consider what decisions a producer typically makes in the course of transitioning into robotic milking:

  • Robot brand – Which company and equipment does the producer feel most comfortable with? Who does the on-farm support before, during and after the startup? What are the core values and vision to indicate where the company is headed?
  • Barn layout – In order to realize the increased production and labor-saving goals, it is important to plan for proper cow and people flow. Are there current structures that can be used to reduce the construction cost, or will the barn and other facilities be built from scratch?
  • Construction – After researching and taking bids, who will build the new facilities or retrofit the existing barn?
  • Nutrition – What changes in nutrition and other protocols will need to be made for a successful shift to this new way of milking?

A couple of common denominators that will allow producers to make solid decisions across the board: research and experts. Financial decisions regarding this matter are no different than the others, as banks are also suppliers.

The core part of financial planning is building a sound business plan. If a lending institution is going to loan thousands to millions of dollars, they need initial evidence that the borrower has a proven track record of success and a solid game plan to recover that investment and then some.

Lamar King, an experienced robot lender from Fulton Bank in Pennsylvania, gave me some insight on what he looks for in a qualified robot candidate: “The things needed to secure financing require being a good manager and problem-solver, and having a good balance sheet with liquidity on it.

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This means managing a well-run dairy with established production metrics and internal herd growth. Being prepared by having some liquidity and a history of many short-term debts paid off is also a positive.”

So what if financial planning is not your thing, yet you still would like the opportunity of the robotic milking lifestyle? Don’t let this part of the puzzle intimidate you. Reach out to an external financial planner who can help get your plans in order before applying for a loan.

Another option is seeking guidance from a trusted producer who has already made the switch to robotic milking. This person can give tips on what to prepare in your business plan and possibly some suggestions based on what he or she has personally experienced financially (as far as cost savings, payback timeline, etc.) through milking with robots.

Now, let’s turn the tables for a moment. What if the problem with securing financing is not a result of the preparedness of the producer, but rather the lack of confidence the lender has in the technology? We hear this quite often since robotic milking is still a fairly new concept in the U.S. Even in working with agriculture-specific lending institutions, sometimes a producer will find the lender has the math sense but not the cow sense.

Lamar shared some feedback on this topic, as well: “A few common misconceptions are looking at debt per cow or debt service per cow like a conventional dairy. This won’t work in a robotic operation. Robots essentially prepay labor, so producers and lenders need to look at total costs of debt plus labor per hundredweight to compare it fairly.” My advice in a situation like this: Find a lender who is willing to learn – and educate them.

As mentioned earlier, the lender should be considered a supplier like all other vendors involved in the startup, so why not have them involved from the very beginning? The more lenders understand what the investment is and the reliability of the technology, the more willing they will be to stick their neck out.

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We promote advisory groups or “profit groups,” which are teams of all those specialists involved in making a producer’s robotic milking goals a success. Many times this involves one of our farm management support team members, the producer’s nutritionist, veterinarian and banker.

A group setup of this nature allows all parties to learn the technology together for a smoother transition. This style of planning also allows the lender to witness the producer’s due diligence and commitment to making this a profitable business move for their operation.

Do the research and strategic planning, get the experts involved and educated, and move your robotic milking goal from plan to profit. PD

alfred kamps

Alfred Kamps
Regional Sales Manager
Lely

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