Wednesday, May 13, 2015

So You Want To Set Up Your Own Small Scale Milk Business? This Is What You Really Need To Know.

Well, it appears that there are lots of people in New Zealand (and the world) who want to either set up their own milk business or want to go mobile milking.

My goal is to set up a streamlined system that will allow others to start their own small scale dairy business. 

My inbox is full of people asking me questions about how to set up their own milk business. I would spend 45 minutes to an hour replying to these emails from complete strangers. I did it because I want to promote small scale dairy & I want others to do well.

But of all these emails I've replied to, less than 10% of these people actually reply back to me. I think it is just good manners to at least flick a quick response back to me saying "Thanks Glen". 

So I'm reluctant to devote much time to tyre kickers. I'm more than willing to help people who are serious about setting up a micro dairy. Any enquiries I get from now on will be directed to this blog post.

The equipment is the easy part

Lots of people are asking questions about the mobile cowshed or the pasteuriser or various equipment questions. But in many respects the equipment is the least of the issues that need to be faced.

To build a mobile cowshed you simply need to talk to an engineer and your local milking machine guy and you'll be able to get something made up.

The mobile milking equipment simply allows people to get into the milk production business at a lower cost. 

People still need to have willing customers, provide customer service, match supply to demand and generally be better than their competition. All the while dealing with the regulations and the significant ongoing regulatory compliance.

The real issue you worry about is Too much work for too little money

Small business is hard

Small businesses have a terrible success rate. Studies from around the world all seem to show a pretty bleak picture.
"8 out of 10 new businesses fail within the first three years"
"80 percent of new businesses fail within the first five years"
"53 percent of small to medium-sized enterprises (SME) fail within the first three years"

Is it really worth it?

I recently spoke to a cheese maker who was shutting down their business. They had an award winning product that was stocked in major supermarkets. But when all things were considered, it was just too much work for too little money. 

I think many of the business failures we see in the statistics amount to the owners saying to themselves "for the amount of effort and stress I'm going through. The money is just not good enough. I may as well just get a job" 

Anyone can start a business, the hard part is creating a business that provides a healthy margin and does not require the owner to be over worked.

You need to overcome the following issues


Any business that processes milk (or meat), comes under a whole extra range of food safety regulations. It's not like starting a cafe where the local council inspector does your audit once in a while.

These extra requirements are particularly difficult for small dairy producers. The story of Biddy is a classic example. MPI have to ensure she meets all the regulations. I support MPI's position, but at the same time the burden is huge on a business her size. I spend more time doing paper work than I do actually milking my cows. 
Don't underestimate the time it takes to be compliant. If you don't do it properly you will get smashed at your regular audits. 

Time off

Many small businesses are dependant on the owner. The owner has all the knowledge. The thing I have noticed with small food producers is that the operators find it very hard to take time off. The purpose of being in your own business is to have more options and a better lifestyle. When you are processing milk you can't just hire a relief milker, you need fully trained and competent people. How does a one man band justify the training expenses of someone who will only milk a few weeks a year. Don't forget, there is paperwork that needs to be done for new staff & this will be audited.

Time efficient operations

When you are small scale, you can't afford to be messing around all day. You will be amazed at how quickly your day disappears. 

Before you know it it's 4:00pm and all you've done is milk & feed 10 cows, pasteurise the milk and deliver it. 

This is when you work out the $/per hour and you realise you may as well just get a job!

You need a system that is automated and designed with time efficiency in mind. The problem is, if you're going to build your own system (like I have) you won't know what is going to take up all the time until you've built it. 

Even if you are awesome and you designed the perfect processing room/trailer/cowshed you need to be aware that nothing works as it should straight away. That gas hot water system won't keep working as they said it would, the pump they sold you will turn out to be inadequate 2 months into milking etc etc.

The hidden costs

Add $20,000 to your budget for unknown costs. You will need it.

Example 1
I've spent $3,500 on milk testing to determine where a bug was coming from. We found the source of the the bug, but no one can explain how that bug was making its way into the milk. It seemed like this bug was defying physics. The result was I modified my pasteuriser at a cost of $3,500. There's $7K of unbudgeted costs that you would never have anticipated.

Example 2
The stainless steel fittings used in the milking plant do not comply with the milk processing standards for the milk processing area. I only found that out during my inspection. Thats another $2,500.

I could go on and on. 

Glen's grand plan

My goal has never changed. It's been to create a dairy business that our best young New Zealanders want to be involved in and more importantly, can afford to be involved in.

There are three issues that I care about:
  1. Attracting our best young people to agribusiness
  2. Moving New Zealand agriculture up the value chain
  3. Truly sustainable dairy farming
Shortly I will officially launch my milk brand, Nature Matters Milk Company.

My vision is to set up a financially viable, environmentally sustainable, small scale dairy business that can be replicated throughout New Zealand by others.

My vision is to have a network of great people all around New Zealand supplying their local community with real, sustainable milk.

This is a network of people who understand, eco dairy farming, who understand processing and food safety, who also live and breathe customer service and understand marketing and how to build a branded business.

But there are many obstacles that need to crossed before this can happen. 

The most obvious obstacle is that, I don't even really know how to create a "financially viable, environmentally sustainable, small scale dairy business" as I described above. 

But I'm pretty sure I'll know in about 6 months time. 

We must join together

It makes no sense to have lots of individual farmers all operating and administering their own 20,000 word Risk Management Programmes, while competing against each other and working themselves into the ground. 

We need join together.

Fonterra farmers don't have to worry about dealing with MPI, because Fonterra have people to do that. Fonterra create the systems and procedures that the farmers need to follow.

I'm currently creating the systems and procedures and developing the equipment that will enable other small scale dairy farmers to comply with all the regulations, while also getting the daily tasks done quickly, efficiently and profitably. Doing it profitably is the hard bit.

For small scale farming to be viable we need to:

  • reduce the regulatory burden on individual farmers
  • co-ordinate fluctuating supply with fluctuating demand (don't underestimate this, it relates to profitability!)
  • ensure operators can get some time off

A network of micro dairy farmers

The idea is to create a network in which small scale farmers can "plug into".

I believe a network of savvy young (or young at heart) farmers, can secure at least 5% of the New Zealand milk market.

I'll detail some rough numbers to give you an indication of how big the market is.

5% of the NZ fresh milk market equates to about 20.25 million litres of milk per year. If we assume that a cow will produce around 3,000 litres (low estimate, equivalent to 270 kgms) in a year. Then we would require 6,750 cows to be in milk at any one time. Which is the equivalent of around 8 Canterbury dairy farms.

If we assume that a viable business requires 30 cows (not proven yet) then we would need
225 farmers. Maybe 50 cows will end up being an economic unit, in that case 135 farmers will be able to meet 5% of New Zealand's milk needs.

How can 30-50 cows be an economic unit?

The model I'm proposing is that the micro farmer is also the processor and the retailer, so they receive the total retail amount for their milk.

Below is a very rough and ready spreadsheet with some ballpark figures & estimates.

I still have no idea what the actual numbers are going to be.

My assumptions are conservative.

Production per cow is low, most dairy cows will be producing well over 400 kgms. I've assumed an eco cow in a dryland environment is much lower.

Revenue is also low, when you consider organic milk retails for $3.65/litre. Anchor blue top supermarket milk retails for $2.45. 

I've budgeted farm expenses at double that of the NZ dairy industry. I'm not sure what they will actually end up at. Staffing numbers will have a big impact on the final number. Remember there are no economies of scale in a small scale business.

Owner's drawings at $100,000. I want to attract our best young people, these people have options and the ability to earn good money elsewhere. For small scale eco farming to spread it has to be financially attractive. 

I want to stress these are rough estimates, experience has shown me that you never make as much money as you think you will. 

The reason for outlining these numbers is I want to show that it's entirely possible to farm sustainably on a small scale and still make a good living.

So If you're interested in being a small scale eco dairy farmer, then watch this space. 

Feel free to post a comment below or you can email me at glen dot herud at gmail dot com.