Archive for Dairy Business Management

Can you produce milk for less than $46USD/100 kg of milk?

Milk is a commodity.  While you can get different levels of fat and protein content etcetera, for the most part all milk is seen as the same.  As the world goes to more and more global trade, milk producers around the world need to realize that in a commoditized market, he who produces the lowest cost milk will win.  Currently the world average cost of production is $46USD/100 kg of milk.  So for those countries and producers that either don’t know their cost of production, or know it and see that it’s over $50USD/100 kg of milk, this is a direct wakeup call!

A recent IFCN report shows that low cost regions Argentina, Peru and Uruguay, Central and Eastern Africa  Central and Eastern Europe and some selected countries in Asia (except Japan and large farms from China) all had the lowest costs of milk production  in the world.  Also very noticeable in the report was how countries like Canada, Mexico, Norway, Sweden, Denmark, Portugal and France all had costs of production over $60US/100 kg milk.


While most major milk production countries in the world have seen their costs of production increase significantly over the past 12 years, the range of difference has come much closer together.  Some low cost production countries from 12 years ago are now almost at par with countries like the US.  New Zealand was actually the lowest cost producer back in 2000, with average cost of production at $12 USD/100 kg of milk, but with increases in input prices and an appreciating currency, costs increased to a level of $35 USD per 100 kg milk.  That is an increase of over 291% in just 10 years!  With such drastic changes in costs of production, it’s no wonder that New Zealand milk producers are having trouble competing on the world market.

As milk production becomes more globally than regionally focused, it’s countries like Chile, Peru and Saudi Arabia that are going to have the competitive edge.  It also means that countries like Canada, Sweden and France are going to find it harder and harder to compete.  Furthermore, it indicates that the world’s biggest dairy product exporters (on a milk equivalent basis) who are currently New Zealand, the European Union and the U.S. could start to see South American countries joining them on these top lists.

Actually the world’s cheapest milk is made in Cameroon, where it comes from beef cows and is a by-product of producing meat.  There the production costs work out to just $1.82 per hundredweight.  But it is not produced in such mass amounts that it can be considered a world player.

One of the scariest trends for all dairy producers is how the cost of production is increasing while the price of milk is not increasing at the same rate.  This trend is sure to cause many problems for producers around the world as we go forward.  Another scary trend for producers is the volatile price of feed, as was very evident in the summer of 2012 when milk prices fell and feed prices increased. Also when you factor in the increasing costs for transportation, environmental issues, food safety and labor, in the future where milk is produced could be quite different from where it has been produced up until now.

The Bullvine Bottom Line

World economic models will show you that, over time, those who can produce their products the cheapest will win.  This is also true for Milk.  As free trade agreements are breaking down the barrier to entry into many countries and the removal of government support programs, more and more producers are going to have to look at their operations and see if they can compete in a global marketplace.  If you cannot produce your milk for less than $46 – 50 USD/100 KG of milk, or you simply don’t know your cost of production, now is the time to either shape up or get out. The future does not look bright for those who can’t answer those two questions.  It is not too early to start planning for your future.


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Are you a hobby farmer or a dairy business?

I have heard it said many times that farming is a way of life.  I get that.  Nevertheless,  I don’t think enough dairy farmers understand  that dairy farming is also a business NOT A HOBBY FARM.

There is no question that dairy farming is all about passion.  Why else would they tie up all the equity they have in the world on an investment that provides what many would consider limited returns.  Think about it, if you’re in dairy farming for the money, you would be better to purchase a McDonald’s franchise.  The return on investment would be higher and the work hours shorter.

This past weekend the dairy industry lost a great member, Ken Rose of Rosayre Ayrshires (Read more: Ken Rose – Rosayre Ayrshires – Passed Away) at the age of 50.  Ken was one of the most passionate breeders I have ever met in my life.  He was also a great cattleman, exhibiting many prize winning Ayrshires.  Yes, I said Ayrshires. That breed that for many are  considered to be for “Hobbyists.”  That got me thinking, “Is it a hobby or is it a business?”

The Difference between Dairy Breeders and Dairy Businesses

Over the years I have met countless passionate dairy breeders but I have met far fewer great businessmen.  Many times there is a big difference between the two.  Just because you have a Master Breeder herd does not mean that you run a great business.  Also just because you milk 1,000 head,  does not mean you have  rivers of cash.  Passion doesn’t make payroll and profits.

The difference between those who are good breeders and those who are great business people starts with a mindset.  While there is no question most will work hard, it’s those that think hard about their business that are the ones who get ahead.  They are willing to take personal responsibility for the success of their business.  They don’t blame it on the weather,  milk price or the dog. They think things through ahead of time and have a plan (Read more: What’s the plan?) about exactly  how they are going to make a good margin.

Do You Have A Sound Financial Plan?

No I am not asking how  you think you are going to make money.  I am asking do you have a detailed budget plan about  how you are going to grow sales and cut costs?  In my work with many technology start ups, this is what makes the difference between those that thrive and those that dive.  It’s not who has the best idea or who is the most charismatic leader.  It’s those that have a well thought out plan.  Sounds simple and  it’s true.  The same is goes for many dairy breeders.  Those that thrive are not the ones that get the most publicity, spend the most money, or breed the best cows. It’s the ones the have a sound plan that thrive the most.  Sure all of those other things can help, but they are just part of the plan not the whole plan itself.

The Importance of a Plan

As a dairy breeder it is very tempting to neglect planning altogether, especially if you are the only person in the business. After all, planning can be a time consuming process, when there is so much work to be done.  But there is no question that the benefits of  good planning will far outweigh any of the work that you are currently doing.

The great thing about a business plan is that it can provide a reference point for you to return to at any point.  Just looking at a plan and seeing how far you have come is a great motivational tool. It can help you determine whether you have drifted too far away from your original vision and whether you need to get back on track  again.  It’s also important to review the plan from time to time. As circumstances change,  your plan needs to change with it.

Writing a business plan will also help you to think more analytically.  It will help you to see correlations between the different parts of your business.  Perhaps decreasing the cost of a particular process will affect your overall profit margin.  Maybe it will reveal that increasing  your investment in your breeding program can actually decrease your cost of production.

The value of a business plan  cannot be overstated. Putting ideas and concepts down on paper is invaluable and the act of researching and compiling data about your dairy business (notice I did not say farm) and the current market you operate in, will prove to be very useful in the years to come.

The 10 Steps to Working Smarter Not Harder

  1. Assess everything that needs to be done.
    Before you plunge into something headfirst, remember that enthusiasm needs to be tempered with wisdom. Look over every aspect of the job and allow yourself ample “pondering time” so that you can be sure that every detail is accomplished on time and accurately.
  2. Make an outline.
    Whether it’s in your head or on paper, you should have a checklist in mind and follow it in order. You don’t want to repeat steps, duplicate the efforts of others, make mistakes or forget anything.
  3. Learn to say no.
    Avoid over-scheduling yourself and be realistic about what you can accomplish in a single day. Sometimes you just have to cut yourself off because there is almost always something that could be done.
  4. Limit your goals.
    Try to avoid multi-tasking because you often get less done since your brain is switching back and forth between tasks. Pick one thing to work on and put your best effort into that until it is accomplished.
  5. Consider your materials.
    Don’t take shortcuts on the quality of your materials. Cheap materials or tools are harder to work with because they aren’t as sturdy or nice. Trying to save a few bucks, but spending an extra hour or two because those cheap things didn’t install properly doesn’t make any sense.
  6. Evaluate your methods.
    You want them to be as efficient as possible. Do your work when you have no distractions surrounding you. Try to do things in  batches rather than one at a time. You want your efficiency to be maximized as much as possible.
  7. Delegate to the right people at the right times.
    Often  the difference between a hobby farm and a dairy business comes down to the team.  Make sure your team is well-ordered. If one person is faster, put him or her on the part of your task that will take longest. If one person is more skilled and accurate, put him or her on the part of the task that is most critical.
  8. Be flexible.
    Your day will not always go as planned. Be open to trying new methods and doing new things.
  9. Rest.
    You should ideally be getting eight hours of sleep every night. You can certainly pull continuous 12 hour farm days, but it’s not sustainable. After a certain point, your body becomes tired and your mind wears down, leading to more frequent lapses in concentration and careless mistakes.
  10. Recognize the point of ‘diminishing returns.’
    The above steps do not imply that you should work yourself to the point of exhaustion. You need to protect your health and the integrity of your business. Constantly working yourself to a frazzle  makes you prone to mistakes. When you’re so tired that you realize it’s taking you twice or three times longer to do a job than normal, you need to call it a day. Rest at least a few hours and come back fresher, so that you can be strong at the end of the job. Learn how to power nap.

The Bullvine Bottom Line

Being a great dairy business is not about who works harder it’s about who works smarter.  The difference between being a hobby farmer and a dairy business, is not who has thought of a better strategy, it’s  who has a sound business plan to implement  that strategy.

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