Quantalux Blog

News, events, observations, industrial and otherwise, from a Quantalux point-of-view.

Survival - Small Dairy Farms

It is tough to be a small dairy farmer these days. We’ve been interviewing small dairy operations in Michigan and have found first-hand that smaller dairy farms (typically family owned) are being challenged by rapidly changing feed costs and milk prices. Of course, energy costs also have a strong impact on farm profitability. The farms we interviewed told us at least 10 and 15% of their gross revenue goes to paying their energy bills. Right now, fossil-fuel costs are manageable at about $4.50 per MCF (thousand cubic feet), but if we return to the prices seen in 2007-8 (nearly $8 per MCF), small farmers will be severely hit.

The reason we contacted smaller farms in Michigan was to see where Quantalux could supply next-generation energy technology, but we also learned lots of other interesting things about how smaller dairy operations can survive. Instead of continually cutting costs for wholesale milk production, many smaller dairy farms — especially those with sunk costs in land, buildings, and equipment — chose to market directly to their local economies. To improve profitability and keep the farm in the family, farms vertically-integrate their systems, meaning that they produce, pasteurize, bottle and direct-sell their own milk production. Other farms use their milk to make yogurt, cheeses, and other artisan products – and then direct sell to the local market. Each farmer is responding to increasing consumer demand for locally produced and farm identity-preserved foods, and for milk with certain characteristics, such as organic or pasture-raised, or non-homogenized and glass bottled.

Michigan dairies such as Shetler Dairy in Kalkaska, Moo-Ville in Nashville and Calder Dairy in Carleton have each focused on the local market. Kaleb Shetler found that consumers in the nearby Traverse City region were interested in a product they could deliver: milk from cows that range outside most of the year and eat mostly grass. Customers also liked milk from glass bottles, so both Shetler and Calder use recyclable glass bottles and offer home delivery. Doug Westendorp at Moo-ville has focused on non-homogenized, or cream line, milk, which some consumers find more digestible. Calder Dairy also makes the most of their existing home delivery service. Their milk-man also delivers butter, yogurt, ice cream from the farm, but also has other refrigerated items by different producers on the truck.

Each of these farms has found their niche by identifying a customer base that was willing to pay a premium for their product. Yes, this is basic economics, but it means that each dairy farmer needs to do much more than just milk cows. Their “product” may start as basic milk, but production of higher value items such as cheeses, yogurts must be managed. Additional product features must also be organized, such as local delivery and assuring a unique product (organic, grass-fed, non-homogenized milk). If successful, the dairy farmer to capture the full value for each sale, earning revenue that exceeds the typical wholesale price for milk (currently around $15/cwt).

This strategy is not necessarily a sure-fire way to survive, but we’ve been impressed with the entrepreneurial nature of these dairy farms. We hope that our energy technology can further allow them to survive and thrive, serving local markets with a product they are proud to produce. Quite simply, if you find local milk for sale, buy it.

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