Humor me while I share one of my favorite farmer jokes: A banker, a realtor and a farmer are on a plane. They get to talking about winning the lottery. The banker says that if he won, he would split the winnings between the stock market and a trust fund for his kids. The realtor would buy and sell homes for a quick profit. The farmer chimes in: "I guess I'd just keep farming until it was all gone."
This joke makes me chuckle because the farmer clearly understands his dilemma. The traditional model of farming full-time is one of the most difficult ways to make a living. You are beholden to the weather, animals, the marketplace, and consumer whims. And, it can be grueling work. However, micro dairies represent a new economic model for dairy farming that allows you to minimize your investment in time, labor and resources. To be successful, micro dairies require a sober commitment to limit your production to the demands of your available market. Most important, you must set clear financial goals and stick to a limited budget. Here are my best tips for making a micro dairy financially viable:
First things first, understand that for most people who farm on a smaller scale, farming is often more about quality of life than it is about income. The goal is to have your micro dairy pay for itself and contribute a few extra dollars to your diversified income stream. Create a financial plan that incorporates the farm as one portion of your varied income base. Calculate financial projections for your farm, including your potential income and operating expenses (such as the cost of feed, vet bills supplies and utilities), then double these expense projections and cut your income projections in half. This should bring your plan closer to reality, especially if you lack actual farming experience.
Know your production costs – on a traditional family dairy farm, they run from $2 to $3 per gallon, not including your labor or capital expenses. For a micro dairy, operating costs are a bit higher, especially if you buy the majority of the feed for your herd. I’d say production costs on a micro dairy start at $3 per gallon. Whether you sell raw milk, make cheese, churn butter, etc., your sales minus operating expenses must be greater than your operating expenses or your micro dairy will lose money and become a drain on your total income base.
The next step is acquiring financing. Grants are the best source of start-up capital, though they are difficult and time consuming to acquire. That said, there are a variety of grants available through state and federal agencies of agriculture. Get online and research what is out there, then contact your congressperson or senator for more information. If you go after a grant, you will need a credible business plan that includes market research and sales, income and expense projections. If you can’t put this information together solo, you will need to hire a consultant familiar with agricultural financing.
In general, I advise minimizing risk by avoiding debt. Taking out a loan can overburden you and the farm financially and force you to expand the business prematurely. Consider a loan only if you can make the monthly payments without using income from the micro dairy. In other words, take the loan only if you can pay for it with your outside, non-farm income. If you must finance the micro dairy with debt, go with a bank that offers loans specifically for agricultural enterprises. Contact your local bank to explore available options. If your bank won't consider your loan application, find an institution that will lend money to a farm start-up. The USDA's Farm Credit System, a nationwide network of borrower-owned lending institutions (www.farmcreditnetwork.com), is a great place to start. Check their website to find an office near you. You may also want to consider refinancing your home and property. This can be an easy and safe way to get a loan if borrowing is your only choice.
Once you have decided how to finance your micro dairy, you need to write a budget. Obviously, you must budget money to keep your dairy animals healthy and well fed. All other expenses need to be carefully scrutinized. I believe that modest and balanced investments that will make your operation more efficient and save you time and money, such as investing in time-saving milking and manure handling equipment, good fencing, and water systems, are worth careful consideration. I also believe that investments designed to expand your production in response to proven and undisputed growth in customer demand are worthwhile. As a general rule, never expand in anticipation of sales growth; only expand in reaction to actual sales growth!
The keys to establishing a successful micro dairy are to minimize and stabilize. By minimizing your initial investment, the time needed to manage your micro dairy, and your operating expenses you are more likely to maintain a stable dairy farm. Don't think of starting a micro dairy as your first step towards fame or fortune or creating an agricultural empire. Your production doesn't need to grow every year. Think of your micro dairy as a stable and contained avocation that will allow you and your family to work with the land and animals as you provide safe and delicious, fresh dairy products to your local community. Once your farm has reached financial viability, stop there. That alone requires discipline and a certain level of humility that the world could use more of.
To learn more about how to manage a micro dairy go to bobwhitesystems.com.
Up next: Part 8: Experience and GoalsIn case you missed a step in the series they are listed below.
Part 1: The Philosophy of a Micro Dairy
Part 2: Looking Back: Micro Dairy History & the Family Farm
Part 3: Proper Handling of Cows
Part 4: Location, Location, Location
Part 5: 15 Universal Truths for Micro Dairy Owners
Part 6: Permitting and Regulations