How to Expand Your Dairy Business: Energy Management
In the second part of our series on how to expand your dairy business, we explore the latest innovations in energy management for your dairy operations and equipment.
The National Council of Farmer Cooperatives estimates there are more than 2,500 dairy farming cooperatives in the US. The majority of these dairy cooperatives cover small areas - sometimes just a single county. Here, we identify three of the main benefits to joining a cooperative, especially for small farmers.
Despite non-dairy alternatives gaining traction among certain consumer segments like millennials, the US still leads the world in total production of cow’s milk. That translates into a lot of dairy farmers who need strong support and return on investment. This is especially true given more than 75% of all dairy farms are small (with less than 100 cows) but only 14% of American milk comes from those farms.
Similarly with more than 250,000 jobs provided by dairy coops, usually in rural communities where career opportunities are scarce, securing a business future for dairy farmers has never been more important.
Balancing production costs is key to ensuring small-scale dairy farming remains a feasible enterprise in the US, which in turn defends jobs and market share. According to the USDA, “costs per hundredweight of milk produced fall by nearly half as herd size increases from fewer than 50 head to 500 head, and continue to fall, but less sharply, at even larger herd sizes.”
Cooperatives and partnerships benefit small farms by providing economies of scale, which helps lower production costs for individual farms. These lower production costs can be passed along to the consumer too, which helps small farms compete on pricing against their larger rivals.
Dairy milk is a commodity. That means it can fluctuate in sale price. It’s also a biological product that can vary seasonally or even daily. Both of these factors impact a dairy farmer’s profits, which puts undue stress on small farms. Farming cooperatives benefit dairy farmers by helping to stabilize the sale price for their product.
One such example is the New York state Hudson Valley Fresh partnership, which guarantees its members a consistent price for their product. That means the price makes up the difference between often very low commodity prices and fair wages.
“I realized that farmers were not going to survive based on the commodity price,” explains founder and managing partner of Hudson Valley Fresh Dr. Sam Simon.
“So I said, we need to do something out of the box...we’ll set high standards for quality and for those farms that meet it, we’ll package [the milk] and see if the public will buy it at a fair price, where the farmer gets a sustainable wage.” His model, now a thriving cooperative, is benefiting local farmers through its unique standardized approach to pricing.
Cooperative-minded associations like the Dairy Farmers of America can also provide safety in numbers by advocating for small business owners through national campaigns, federal lobbying and marketing solutions. In turn these campaigns can focus consumer attention on small farms, supporting their business through increased demand for local or organic products, for example.
While 74% of dairy farms chose to outsource the processing and packaging aspect of their operation in 2002, the trend is shifting among cooperatives. In fact according to the USDA, while only 50 dairy cooperatives currently operate manufacturing plants, those 50 account for more than 75% of US cooperative dairy production.
This trend is tied to economics. Research suggests, for example, that processing dairy can provide greater margins for farmers than selling milk as-is. For small dairy farmers, charging a premium per pail is the matter between success and closure.
Unfortunately, pricing and packaging tend to be in the hands of the dairy processor. Owning and operating a dairy processing facility takes resources and skills that make in-house processing an unaffordable for most individual farms. For dairy farms looking to manage processing themselves however, cooperatives present an alternative thanks to a larger talent pool and economies scale.
Beyond processing costs, cooperatively-run dairy processing facilities have other benefits. For example, it’s far easier to match supply with demand. That means:
Coops who run their own processing facility also help farms differentiate their product for less than the cost of going it alone.
There are many different business models to choose from if you’re a dairy farmer. However if you’re considering setting up or joining a cooperative then we hope these three benefits outlined above will help you make the decision that's right for your business.