HUNTINGDON, Pa. — Dairy farmers considering value-added products need to consider the industry and the project’s financial implications before taking the plunge.
“This comes with a price tag,” Sarah Cornelisse, a senior Penn State Extension associate, told about a dozen potential entrepreneurs during a daylong workshop on value-added dairy products.
“It adds work and responsibility,” Cornelisse said, “and we all know the dairy farmer is already very busy. There (are) additional risks and liability.
“You also need to consider whether you are open to keeping this going long term,” she said. “You may need to be open to changing the product in ways such as flavors, etc., to meet the needs of your consumers.”
Most of the dairy producers at the workshop said they were interested in cheese.
Cornelisse warned them to be sure they are going into business with enough research.
“Make sure you are not just making the product because you personally like to make the product,” she said.
The next step is to conduct a feasibility study to see if all the effort is worth it. The study should answer such questions as: Is there a demand for the product? Do you have the facilities and equipment? Do you have enough help?
“You need to consider who is going to do what. One person cannot do it all,” Cornelisse said. And the product should fit consumer interest. “If I want to make a soft cheese but the market wants a hard cheese, then you need to make a hard cheese.”
She also said farmers need to consider whether to sell the product on their own or work with a restaurant or other business.
“You need to find out who are they marketing to,” Cornelisse said.
Also, dairy farmers need to decide whether they will use all or only a portion of their milk output.
Cornelisse showed a slide of milk yield estimates. A 25-cow herd that’s 100 percent dedicated to whole milk cheese production will produce 894 pounds of cheese a week, or 46,488 pounds a year.
In contrast, a 50-cow herd with only 10 percent of its milk output dedicated to yogurt as a value-added product will produce 1,788 gallons, or 38,144 6-ouce containers, in a week.
These numbers are important, Cornelisse said, so a farmer can ask himself, “Do I have an outlet for that much cheese?”
She also pointed out that yogurt is not shelf stable. If it takes a while to sell, storage may be a problem.
The cost — both the capital investment and the cost of production — is perhaps the most important consideration.
“Do you have a building or do you need to build one?” she said, adding that other needs, such as storage racks or specific kinds of knives, can also get pricey.
“It will cost you $100,000 conservatively, and that is a low-cost estimate,” Cornelisse said, adding that she knew someone in New York state who invested about $7 million in a cheese-making operation.
Producers need to figure out what it will take to make the business profitable, she said.
A break-even yield, Cornelisse said, is the total cost divided by the estimated unit price, whereas a break-even price is the total cost divided by the expected production.
If the total cost is $200,000 and the value-added cheese will sell for $8 a pound, it will take 25,000 pounds of cheese to break even.
“If you really want to make a profit in this case,” she said, “you either raise the (price) to more than $8 a pound or make more cheese. You need to ask yourself, ‘Is it feasible?’ ”
Ginger Fenton, a dairy Extension educator, assisted Cornelisse in presenting the findings from a study of grass-based dairies in Vermont.
Data was collected from 71 grass-based dairies, including 13 value-added dairies. Another 10 were interested in a value-added products, while 48 had no interest.
Profits were $772 per cow for the value-added dairy group, $290 per cow for the interested group and $412 per cow for the group not interested in value-added dairy products.
Average herd sizes were 21 cows for the value-added group, 50 for those interested and 70 for those not interested.
“These are rather small dairies, so keep that in mind,” Fenton said. The number of farms in each group was also small, which could skew the results.
Cornelisse showed attendees different cheeses she had purchased from a grocery store and asked them to look at the packaging and think about who might be buying the products and at what price.
Some cheeses are wrapped in wax paper, others in plastic, and various colors are used, she said.
Among the samples passed around were a small wedge of round cheese, a Hawaiian flavored cheese, a bag of cubed New York cheese and a dairy beverage marketed as “That Indian Drink,” otherwise known as lassi, which is similar to a yogurt smoothie.
Cornelisse said industry research should be considered in terms of marketing for a specific product.
Consider such questions as: How big is the industry? How has it changed? How will it change? Is it viable? Will it support one more firm?
She also said farmers must recognize that not all customers are the same. They should also look at their competitors and compare their operations.
Purchase the competitors’ products, she said. Ask potential customers what they prefer. Tap into the resources available from industry groups, Cooperative Extension, research reports and the internet. Use your own observations.