Agent: Low prices push farmers to new market
STATE COLLEGE, Pa. — Dr. Ginger Fenton of the Penn State Extension and Sarah Cornelisse of Penn State discussed the feasibility of undertaking value-added dairy projects during a university Dairy Summit on Feb. 5.
The team reviewed the potential profitability of value-added plus helpful information for producers before entering this venture.
The lack of demand for fluid milk coupled with low milk prices has prompted dairy managers to look at value-added projects.
According to USDA, the annual fluid milk consumption has been declining continuously for decades. Looking at data between 1975 and 2018, the demand for cheese outstripped fluid milk in 1995-96. Fluid milk was close to 250 pounds per person in 1975; by 2018 it slumped to about 150 pounds per person.
However, the per person annual cheese consumption in 1975 was about 16 pounds per person; by 2018 cheese consumption had jumped to about 37 pounds per person.
Direct sales of milk, making cheese and transitioning to organic are just a few ideas dairy operations are evaluating. Cornelisse showed the audience numerous options: butter to yogurt products, production types from breed-specific to organic, and marketing possibilities from branding, CSAs, to restaurants. She noted that the varieties of cheeses, for example, are extensive.
In 2018, one-third of households purchased fresh milk and cream; two-thirds spent their funds on the other dairy products.
To analyze the market, Cornelisse pointed out that demand, possible target market(s), the competition and the market channels and outlets must be considered. She suggested identifying primary and secondary markets, researching demographic, geographic, psychographic and behavior traits, and checking price sensitivity. The artisan, farmstead, local or organic attributes of different cheeses, for instance, vary with price-sensitive and quality-seeking consumers.
In addition, there are distribution and market channel options. Whether to wholesale or retail depends on seasonality, end-user interaction, plus volume and pricing. Producers must also analyze their facilities and equipment, labor and management, inputs and their motivation.
Fenton examined whether value added is feasible for the producer’s farm. She advised questioning one’s mindset—asking why one farms, is he/she a ‘cow’ person, passionate about creating a product, and would value added fit the lifestyle.
Also, determine how much milk would be needed, and if purchasing would be desired.
Fenton pointed out that production and quality should be evaluated. Several questions include: Is the quality, quantity and genetics of the herd right for the intended product(s); do the diet, grazing requirements, exercise, housing, herd health programs allow for transitions; is milk where it needs to be for processing, including SCC, bacterial counts, and components; is acceptable storage available; are standard operating practices operational for milking, herd health and sanitation?
More questions should be assessed on the farm’s location, appearance, and access to markets and transportation, and whether visitors should come.
Management plans, Fenton stressed, need to consider family and/or hired labor, expertise, duty segregation and traffic control. Also the extent of the support network should be consistent.
Fenton listed aspects of the processing facility that included separation from farm operations, equipment needs of the products, cleaning and sanitation essentials, and storage needs, plus water quantity and quality and waste and wastewater disposal.
She emphasized reviewing the plans with regulators before construction, and accomplishing that consultation early.
In addition, building permits, department of agriculture licenses, FDA registration, food safety plans and requirements, testing labs and third party audits may all be necessary.
She noted that manufacturing off the farm, contracting with your own label, forming a cooperative, and purchasing a product to retail may be viable alternatives.
Cornelisse added that startup and operating costs plus financing, revenue and profitability demand an enterprise budget. She shared a detailed list of building and systems, plus equipment and supplies for cheesemaking which reflected the extensive number of materials and supplies essential.
Suggestions for financing include assessing debt, investigating all options, and availability of resources, plus profit potential. Pricing must also be studied — especially with production costs, marketing expenses, break-even price, and myriad pricing methods. Analyzing investment should consider returns, risks, and the current inflation rate.
Finally, Cornelisse and Fenton advised weighing the options by gathering information, consulting with others, and considering all aspects. They pointed to industry groups and associations, food science programs, regulatory agencies and extension programs.