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Friday, October 17, 2014

Results from a survey on success factors for value-added dairy enterprises

by Sarah Cornelisse, Sr. Extension Associate, Dept. of Agricultural Economics, Sociology, and Education.

A Journal of Dairy Science article from 2013 reports out findings from a survey conducted by researchers at the University of Kentucky aimed at identifying "indicators of success for those considering on-farm processing."  The researchers sent out a 12 question survey to 120 value-added dairy processors across the U.S.  Thirty-one of those survey recipients responded, providing answers and comments on a range of questions, including; cash flow, products produced, information sources, and challenging aspects of starting the enterprise.

Cheese is the most popular value-added dairy product to process.

Of those who responded to the survey, 64% had been involved in their value-added processing enterprise for fewer than 10 years.  Cheese and milk were the two primary value-added dairy products.  And while 74% of farms were using milk only from their own dairy, 22% were using a combination of their own and an outside supply of milk.

An important consideration when starting a value-added enterprise is the length of time expected before you attain positive cash flow.  Of the respondents for this particular survey, the majority (32%) reached this point between 1 and 3 years after launch.  It is important to note however that while only nine percent of the respondents have been involved in on-farm processing for less than a year, 12.5% had not yet achieved positive cash flow and for another six percent, it took between five and ten years; giving weight to the fact that a value-added enterprise is not a quick solution to profitability issues for a dairy.
"Do not plan to get rich and support a dairy that is not making a profit."               - respondent advice for other farmers
Other additional findings from the survey include:

  • Sources of funding to finance the value-added business primarily came from loans, personal savings, and family,
  • Commodity milk price was a driving factor for the majority of respondents to start the new business, and
  • Regulations, product marketing, manufacturing, and funding ranked as the top four most difficult aspects of starting the business.

When asked for advice that they would give to other dairy producers considering on-farm value-added processing, most responses fell into the following general categories (ordered by number of comments that fell into each category):
  • Business planning
  • Marketing research & planning
  • Understanding regulations
  • Time management
  • Having a support system
  • Entrepreneurial thinking
To end on a positive note, 97% of survey respondents indicated that they were either "extremely satisfied" or "satisfied" with their decision to start on on-farm value-added dairy enterprise.  If you are passionate about the value-added enterprise and well-researched and planned, you have increased your likelihood of success.

If you are considering a value-added dairy enterprise, our publication "Get More for Your Milk," has valuable planning information.

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