Tuesday, January 29, 2013

Actually, The $58K From 20 Cows Is Not That Easy

In my last post, How To Make $58,788 Per Year With 20 Cows. I talked about how a simple dairy can be set up for quite a small investment of just over $100,000 and the milk can be sold direct to the customer.

I hoped the post would encourage people to think differently about dairy farming and the possibilities available. 

It's certainly a good illustration of how profitable a business can be if it can retain the whole retail price.


It's not quite that simple.

It's easy enough to buy a few cows and build a cheap dairy to process the milk. That's easy. There are plenty of experts who can design or build the components for you.

But the production of the milk is only a very small part of the equation.

There are many examples of farmers around New Zealand who have tried to process, market & retail their own farm products and either failed or simply decided to gave up, as it's just too hard.

There are a few who are successful, but they are a minority.

The skills required to produce milk or lamb are very different to those required to process the product and the skills to successfully market and retail the product are different again.

Processing Skills

The hygiene standards required to process a product are much greater than the average farmer has to deal with. I've heard of farmers complaining about the minimal and rudimentary hygiene standards insisted upon by Fonterra, they wouldn't cope with the requirements of many food producing businesses. 
There is no room for error!

Marketing Skills

You can spend $50,000 by putting one print ad per week in the Christchurch Press, and there is no guarantee it will help you sell a single bottle of milk. 

There are so many examples of marketing campaigns and product launches that fall flat or are simply not noticed.

All of the people behind these marketing efforts were convinced they would be successful.

Retail Skills

Customer service is hard work and unrelenting. Customers are demanding and often unsympathetic. They don't care the hours you work or the effort you put in. They care about them selves and if they feel your product is not good value or another product is better, they will switch.
You can give 100 customers in a row great service, but if you drop the ball on customer 101. They will let you know or worse, they won't let you know and instead tell their friends about it and tell facebook, twitter or that review site.

Farming Skills

There are approximately 11,000 dairy farmers in New Zealand. They all milk cows on grass the same way. They have over 100 years of collective knowledge to draw from. Combine this with farm advisors, fertiliser reps and accountants all available to give you information.

There is no excuse for a farmer to fail as they are surrounded by experience and knowledge.

There isnt really the same experience in the business world, as every product or business is different.

Who knows if your product is different and in demand by customers.

Microsoft were promoting tablet computers in the early 2000's and nobody bought them. Why did everybody want tablets when Apple made them?

Klondyke Fresh supply milk with no permeate in it, but do people really care?


Maybe you have all the skills and your farm produce is much better than anything else on the market and maybe you're awesome at marketing and sales and maybe you have your processing sorted.

You might be fine for the first 6 months while its all still exciting. But what happens when you are sick or run off your feet for months on end or one of your staff leave. 

Can you maintain the standards? 

What happens when you (who does all the customer service duties) is sick for a week. Your husband, wife or son, who possess the people skills of a Tasmanian devil take over and rub 10% of your customers up the wrong way.

Happy Vally Dairies is an example of maintaing consistency.

The owners of a Southland dairy factory at the centre of a food recall say their business has been destroyed.

Frans and Jeanine Venekamp have decided to walk away from the factory after E.coli bacteria was detected in a sample of milk.
The couple closed the 16-month-old business, Happy Valley Dairy Factory in Tuatapere, and laid off two staff yesterday.

The owners had gone away to the national cheese awards, when E.coli was detected in their milk. The NZFSA tried to call them but the contact number they had was not answered. They issued a full recall and alerted the media to ensure nobody drank the contaminated milk.

That day they got the most media attention of their lives, unfortunately for all the wrong reasons.

The brand was destroyed. 

The owners took their first break away from the business and one mistake by a negligent employee destroyed the entire business.

All the years of planning, the hundreds of thousands of dollars spent the hours worked, all destroyed by one person not washing their hands after going to the toilet or mud on someones boots getting inside the processing area.

If you had a choice, would you rather run 100 metres a day and get paid $100 or would rather complete a 100 metre obstacle course and get paid $500?

Thats how I think of it. 

Maybe its better to just get the tanker to pick up your milk every day and get paid $0.50/litre for your milk.

But there if definitely an opportunity to make $2.50/litre but you need to have the skills to complete the obstacle course and you need to be able to do it every day without fail.

If you can do that, then that just gives you the right to compete against the other brands.

You then have the opportunity to go up against the multi national food companies with marketing departments and legal teams and deep pockets.

Sounds like fun to me!

1 comment:

  1. Hi there,

    these are some especially well thought through bolgs comments. Thank goodness that yr uncle came to New Zealand. \Yes it is true that there are restrictions upon any generation of wealth, curtailments upon any increase in procduction of food. The restrictions and curtailments are the workd of self-centered politicians. They are an ego-centered and me first band of people. Most are fools.

    For instance, selling of our assets to pay for extravagant and foolish financial decisions has not been profitbale at all. IN 1984, when the big"hock off" was begun by Roger douglas, the total debt of NZ was $16 billion. This year, after 29 years of this absurd ecnomic experiment, the total NZ debt is up to $230 billion. This is an equivalent of nearly a compounding increase of 10%per anum. the point here is that the profit from those companies, telecom etc. all are sent overseas. We miss out on that amount of money in our circulation. It could be about at least 1-1.5 billion per year. This is true if the annual return on capital was taken to be about 7% ;(+,-1%) So Mr Herud has said that it is politicians who cause a food shortage, not global warming nor environmental affairs. Here we have about billion a year going "missing" or being remitted. Over 25 years- 25 bilion. In fact there will be more because that capital would have been re-invested and muiltiplied to make more. It could be nearer to 50 billion, in lost earnings, and lost from N.Z. Imstead of selling off the fat politicians could have trimmed expenditure, esp the public servant sector; and did what sheep farmers do; "dig in" and prune and do it harder.

    As for hygiene; the Venekamps were singled out. I have seen some awful stuff be sucked up by the cups in dairy sheds- dung, urine, dirt, dirty water: lots of e coli I would say. fonterra can hide it all in the volume and their tests. Venekamps were a subject of envy and jealosy and became prey for "officials"