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On-farm processing: Is it right for you?

Steve Harris for Progressive Dairyman Published on 09 June 2017

Dairy producers are facing fewer options to sell their milk. Cooperatives have been consolidating, and consumption of fluid milk has struggled to grow in recent years. This can be a worrisome time for dairy producers; many have elected to control their own destiny by turning to on-farm processing and producing their own dairy products.

On-farm processing can be emotionally – and financially – appealing. A dairy producer may envision taking control of their milk price, selling a high-quality dairy product at a premium price with their name on the label, having a local store on the farm or a grocery chain distributing their products, winning awards and recognition for their products, and seeing a strong financial gain in the producer’s operations.

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While many of these visions can and have come true for some, it’s far from being a sure bet. It takes tremendous planning, time, energy, financial investment and risk, along with a lot of luck, to see success in on-farm processing.

If you’re considering a move to on-farm processing, here are some key areas to first consider.

What are you making?

So you want to consider on-farm processing … to make what? Is there a specialized product you’ve had experience making? Something that appeals locally? An old family recipe?

Producing fluid milk or an aged cheddar may make it harder to have a unique product in a saturated market. Conversely, an old family recipe for a Camembert cheese may be unique on the market but with very limited appeal.

As you determine what you’re making, focus on just one processing capability. Producing multiple dairy products will require significantly more capital investment, will strain your focus and may compromise your quality. Most major processors focus on only one dairy processing capability per plant.

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Market feasibility

One of the first key steps is to do research and determine if there’s a market for what you want to produce. Ask yourself: Are customers willing to pay a premium for something that’s sourced locally? If you offered a specialty product, are people going to buy it? Do people demand a product that’s certified organic? Are there products like yours on the market already?

Studies have shown a customer willingness to pay a premium for locally sourced products. But that doesn’t mean you can automatically assume people will be clamoring for your product and paying top dollar.

Determining a realistic demand and price point for your product are critical steps in the project. The good news is: There’s minimal investment required to validate these initial, crucial steps.

Distribution

In addition to demand and price point, you need to determine distribution. Where will customers purchase your products? Are you offering a storefront on-farm? Will customers come to the farm? What licenses are required to have a store on-farm?

Are there local grocery stores that would be interested in carrying your product? Will you ship packages out by mail or focus only on local distribution? Having a well-thought-out plan for distribution is key before you start the financial investment phase.

Capital investment

On-farm processing requires a significant emotional and financial commitment. You’re changing the direction of your farm and your focus for future generations. But the decision to invest in on-farm processing needs to be rooted in the expansion and growth of an already financially sound farm. A smaller farm will struggle with enough processing production to recover the initial investment.

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A farm in poor financial health will only become worse off with an investment in processing. Mid-sized and larger farms with a healthy financial position are the most suitable candidates to be successful in on-farm processing.

To commit to on-farm processing, a significant initial financial investment is required. Land, design, building, permits, regulations, labor and processing equipment are all significant costs being incurred before you produce, sell and earn your first dollar.

There’s obviously a potential return on the investment for the processors who are successful; however, the risk is not for the faint of heart or poor planners.

Operations

You’ve done your market research and secured available financing for your on-farm processing. Before you go further, you need to have a plan for processing operations. For instance, you’ll need to know production, labor sourcing, food safety regulations, quality assurance, organic certification and what’s required to achieve that, consistency in raw milk supply, equipment parts and supplies, wastewater management, good manufacturing practices, and cleaning and hygiene.

Processing is a different world from milk production, and you will need to be well educated, or hire the right processing-oriented teammates, to help you on this journey. Some producers assume they can make the leap from production to processing and find themselves struggling in a costly, foreign segment of the industry with a lot more complexity than they believed possible.

Marketing your product

Having a state-of-the-art facility and a great product means nothing if nobody knows about it. Distribution will play a heavy role in brand awareness and reach, but building a brand and a reputation will require up-front cost and marketing expertise. Social media can play a big role, but sales success still relies on classic marketing 101 to create awareness and interest in your product.

Two successful examples of brand building include Red Head Creamery and Marieke Gouda.

To build a successful brand, you will need in-house marketing expertise or to utilize the capabilities of a third-party agency. And you’ll need to invest in your brand up-front – another financial commitment for potential down-the-road payoff.

Where to start

Although it sounds like a cliché, start by looking within. Passion alone won’t make you successful, but you will need plenty of drive for this project to ever become successful.

Assuming you have the passion, you can easily start by doing some preliminary market research, visiting a local farmers’ market, browsing local grocery stores and searching the internet for on-farm processing businesses already in your area. These steps will lend some perspective to the potential opportunity.

Once you’ve done preliminary research, consider connecting with a local university, particularly one with an agricultural or dairy focus. University professors and students can be great, affordable resources to provide more information.

You can also speak to companies in the processing industry. A few companies offer more comprehensive solutions for both milk production and on-farm processing.

Despite all the work, investment and risk involved, expansion into on-farm processing can be successful for those who do it right. The industry has seen growth in locally sourced, locally owned products, and there’s no indication that demand for these premium-priced, high-value products will fade.

With the right business plan, the right financial stability and the right execution, the opportunity is there for dairy producers to expand into on-farm processing and alter the future of their business for generations to come.  end mark

Steve Harris is the sales director at DeLaval Cleaning Solutions.

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