What are the key reasons that lead dairy managers to make the decision to expand? Are they purely financial? Or is it related to the long-term viability of the dairy? Maybe they know something about new markets? No. It’s more complicated than that.
Dairy owners and managers spend 90% of their time finding and fixing problems. They want healthier cows, more money, better feed, staff that is happier, more capable and hard working, and on and on.
Who wouldn’t want to solve all these problems? Yet these are not the real problem. The real problem is that there are so many problems that dairies get stuck like deer in the headlights. They’re not prepared to fight. They aren’t ready for flight. So they freeze or, at the very least, resist change.
“One reason people resist change is because they focus on what they have to give up, instead of on what they have to gain.”
Change is necessary for any business that wants to grow and prosper. Having said that, growth doesn’t always mean bigger.
Unrestrained growth in any business can have serious consequences. Growth comes at a cost. More capital, more physical resources and more people. These go on the ledger as expenses well before there is a return on the investment. Thus, dairy managers face a double-edged sword. On the one hand, we want to ensure that the business grows, but, at the same time, we need to control that growth so that it does not cause its eventual downfall.
“Plan to grow by all means, but not by any means. Define what growth means to your dairy then plan to grow within that definition.”
Have You Done Your Growth Homework?
Before you go big, you have to do your due diligence. Here are twelve steps to take action on before you leap into expansion.
- Visit farms who have gone through an expansion.
- Plan. Plan. Consider your future needs. Do research.
- Use top notch consultants.
- Make sure you have considered, cash flow, loan availability and financial resources.
- Don’t rush into deadlines. Take time.
- Accept advice from farmers and consultants.
- Know your family. Know your goals.
- Don’t overlook the importance of manure handling and storage required by an expanded facility.
- Focus on labor efficiency and profitability.
- Hire reputable builders and contractors.
- Be open- minded, flexible and ready to change.
- Be prepared to expand your management style to accommodate the new facility.
To Determine if Expansion is the Answer, First Ask the Right Questions.
It is exciting to think of all the potential improvements that could be put into place along with an expansion. Unfortunately, improvements should be considered before adding land, cows or facilities. Give complete answers to the following questions derived from ones suggested by Kansas State University Agricultural Experiment Station and Cooperative Extension Service. Go beyond a simple “Yes” whenever you can.
- Do you currently have the skills to manage employees?
- How can you improve the efficiency and profitability of the present operation?
- Can production per cow be increased? Can reproduction efficiency be improved?
- Could the current herd be milked three times per day? Is your staff used effectively?
- Would it be possible to send the heifers to a contract raiser and expand the cow herd?
- What are my financial goals? Can revenue be Increased? Can expenses be reduced?
- Where do I want to be in five years? In 10 years?
- What are the expectations of other family members?
- Do I have adequate acreage to expand the herd and manage the waste?
- Do I want to deal with regulatory agencies?
Potential Problems that Come with Expansion
You may be well aware of the ways that expansion will solve some of your current problems, but you need to understand what new problems the expansion itself could bring with it. Here are some factors to put into your strategic problem-solving scenarios when expanding.
- Detailed manure handling.
- Siting to minimize odor conflicts
- Detailed effort to hire qualified and experienced contractors. Have a project manager.
- Prepare for loan or cost overruns. Expansion is dynamic. Costs rarely get smaller.
- There could be disease introduction with the larger herd numbers.
- Analyze all aspects of facility design and understand the potential for problems (curtains, sidewall ventilation, size, )
- Make yourself aware of legal by-laws, zoning restrictions and environmental impact regulations.
The People Factor is Crucial
A dairy doesn’t exist in a vacuum. Many people, both on and off the farm, will be affected by changes. Make sure these areas receive consideration.
Surround yourself with a team of experts and listen to them. Getting sound advice is the best investment you can make. Having said that, do not blindly accept everything a consultant tells you. After it is all done, it is your farm, not their’s, so the decisions need to make sense to you.
After expansion, you will be a people manager, not a cow manager. Listen closely to the people who are closest to the day to day operation. They usually have valuable observations. Create safe and happy working conditions. The most valuable interaction you can have is in setting up SOP systems (Standard Operating Procedures). Other employee policies may need to be instituted. Take management classes to learn how to manage people.
- Neighbors and Community
It is important to recognize the importance of neighbours, suppliers and members of the community, as they drive by and are affected by your dairy. Your expanded operation will have an impact on the local economic community and local businesses. Be ready to have expanded outreach to those who may have concerns. Encourage neighbours to learn about your farm practices and be prepared to show how you give back to the community through the products you produce, the green spaces you maintain or the support you have for local youth, charities or projects.
- Your Banker
Financing is key to a well-developed dairy expansion plan. “Your banker will consider, not just the big picture, but also, the small details from working capital to long-term cash-flow assumptions, transition and construction-phase issues, contingencies and having a well-document plan. Any one of these items alone could slow down or disqualify your expansion. Bankers will analyze everything in order to determine what is approvable and bankable.”
The Bullvine Bottom Line
Expanding a dairy farm does not necessarily mean that making everything bigger will make everything better. More land more cows more buildings all come with the potential for more problems. The reality check should be on making it “better” before actions are taken that make it “bigger”. At the end of the dairy day, it means getting better at what we do and, in the process, making the dairy industry and our personal part of it a better place to produce milk products that are healthy and safe.