Thinking Of Starting a Micro Dairy. Don't Do It!

I've been selling milk from my micro dairy for over 1.5 years now. I started with 7 cows and I'm now milking 55 cows and selling milk all over Christchurch to some of the top cafe's and restaurants.

I'm selling direct to the public as well and we are about to start supplying supermarkets too.

So things are going well. At least from the outside it looks successful.

Internally, it feels like a complete shit show in which I'm only just hanging on.

I now employ 2 full time staff and I literally work 14 hours a day 6 days a week. Which is exactly the opposite of what I set out to achieve.

Over the last 6 months, I've spoken to most of the small scale dairy operators around the country who are doing a similar business. 

The common theme is, no one is really making any money.

My advice is, Don't do it.
I'm very reluctant to encourage anybody to embark on a similar venture. It's so much hard work and so much more complex than you would think.

I don't say this lightly, after all this is has been my dream for the past 5 years.

But every week I get calls from people all around New Zealand. Some are thinking about doing a similar thing, some are already under way with the set up. I enjoy chatting and hearing their plans and I like to offer my advice.

Knowing what I know now, I'd say 90% of the people who call will fail. If they don't fail they will get the shock of their lives and scramble to make the changes that are needed. (which is kind of what I've done.)

Some common comments are:

"My plan is to just undercut everybody"

Well, if you think you can milk 50-100 cows, process, package your milk, deliver it and be cheaper than Fonterra or the budget milk brands. You're dreaming.

"With the payout so low, I'm looking for other ways of bringing in more income. I thought I could just divert a couple of hundred litres out of the vat and deliver it into our local township"

Sounds like a good plan. But you don't "just" divert a few hundred litres out of the vat. That few hundred litres will consume all your time and will be more work than the rest of your operation. 

"I'm going run the farm and employ someone to do all the sales for me"

No. You have to do the sales. If you can't rock up to a cafe owner and peddle your milk your self, then no employee is going to be able to do it either. This type of business is a sales and marketing business with about 10% of your time taken up farming.

"I've spoken to a few cafes and they all said they'd love to buy my milk"

Almost all cafe's will say they want to buy your milk. It's a completely different story to actually deliver milk to a cafe. 
Most cafe's are buying their milk at $1.25 to $1.50 per litre. You can't make money at $1.50/litre and in fact you probably won't make much money at $2.50/litre either.

You will need to be able to go to a cafe owner and convince them to stop buying milk from the Meadow Fresh or Anchor guy, who they are now friends with because they have seen him every day for the last 5 years. 
You need to convince them to give back the $5,000 worth of fridges that Anchor or Meadow Fresh have provided to them for free and on top of that you then need to convince them to pay twice as much for your milk. 
When you think about it, milk is the major ingredient in their most popular product. You are asking them to pay double for that.

So you better shine up your snake skin salesman shoes and get used to rejection.

"I dont need any fancy equipment, I'm only going to be milking 20 cows"

Actually, the smaller you are the more efficient you need to be. That's because you don't have lots of labour. Labour makes up a disproportionate proportion of your costs. Your equipment and processes and systems need to be super easy to use and clean and operate. Everything needs to be planned and well designed. If its not, you will end up spending hours and hours just fiddling around.
This is my biggest learning. We are very inefficient and it's costing me a fortune in unnecessary labour costs. 
The problem is you probably don't know what equipment you need or how your systems will run before you start. 
Make sure you have the cash to redo everything after 6 months.

All my budgets had shown that I needed to sell 300 litres per day to make money. I now think you need to sell at least 600 litres per day to be profitable. You will need to sell your milk at a minimum of $2.50/litre and preferable more than that.

That's actually quite hard to do. 

The other thing to consider is competition. I've had calls from multiple people from almost every part of the country. 

There are currently over 135 dairy RMP applications before MPI. Many of these are micro dairies. There will be competition in the future. 

It's hard enough trying to compete against Goodman fielder and Fonterra. If you add two or three farmers also competing against each other. It makes for very uncertain profitability.

My advice is to seriously consider if you really want to actually set up a micro dairy.

I would not recommend it. It is seriously hard work.

Having said that, it is possible to make a success of things, but it is not easy and it needs to be done a certain way.

I've blogged before that the answer to making small scale dairies viable is for these farmers to collaborate and work together by pooling resources and knowledge.

It's my plan to organise something in the future. But right now my priority is to try and stop hemorrhaging money every month.

Sprout Agribusiness Programme & Who Wants To Go Mobile Milking?

For the last 2 years I’ve been working full time to set up an experimental prototype dairy system. The plan has always been to "pave the way"so other people, like me can go farming even if they don't have any land or very much money.

I believe it was Peter Brock who said “Bite off more than you can chew and then chew like crazy”. 

That describes my last two years quite accurately.

Without going into all the details, I’ve learnt a lot over the last two years and now it's time to crank things up and get this show on the road for real.

A Quick update

In order to move to the next step I need more money, as I've used all I have setting up the prototype system.

I’ve been accepted into the Sprout Agritech business accelerator. The programme is designed to help boost agricultural technology companies with potential to go on to become successful global businesses.

They had 60 applications; they interviewed 22 and finally selected 8 businesses to participate in the programme.

The Sprout programme is based in Palmerston North and is funded by:

LIC

Gallagher

MIG Angels (Palmerston North)

Ellison Holdings (Larry Ellison from Foxton not San Francisco)

K One W One (Sir Stephen Tindall)

Enterprise Angels (Tauranga)

A big thanks to those organizations for putting the cash up and supporting agricultural development in NZ.

The Sprout organisation have taken an equity stake in my company and I’ll spend the next few months working alongside some pretty cool people and getting myself ready for the investment showcase which is held at the end of the programme in March 2016. 

This is an opportunity for the 8 businesses to pitch for investment from agri focused investors.

We're Selling Milk

In the past year I’ve established that people actually want to buy my milk (thank goodness!) and the steady stream of emails from people wanting to set up their own little businesses like mine has shown me that there actually are people out there who think this is a good idea!

You never really know if your idea is any good until you try it.

In this case, when I told farmers about my mobile project they all said it was a bad idea. But when I told my town friends and acquaintances, they all said it was a great idea. 

Who to believe?

Anyway I gave it a crack and it turns out that there are good number of people who like the concept. So it's now worth taking these ideas beyond my own little project.

The Plan

The plan now is to make what I’ve leant available to others and to set up a system that people can “plug into”. This system will take care of all the crappy, time consuming, tedious stuff that real people don’t really need to know about.

I’ll give you an example,

If you’re a farmer and you wanted to set up a dairy farm, and let's say you choose to supply Fonterra.

Fonterra give you the “Fonterra Handbook” which includes all the rules and specifications that farmers have to abide by in order to comply with Fonterra’s risk management programme to produce milk.

The farmer then buys a milking plant and has a cowshed built. The milking machine company sells a machine that complies with the food safety code and the builder builds a cowshed that complies with the code as well. 

These items are reasonably priced because there are lots of milking machine companies & builders who can supply cowsheds and milking plants.

The farmer doesn’t need to know all the food safety regulations for every aspect of their business because their equipment suppliers & Fonterra know all about their particular parts and they pass onto the farmer what they need to know.

There’s no one who provides a solution like that for small scale dairy producers.

When you look at the small cheese makers or milk producers, they have to do everything themselves. They have to write their own RMP and then maintain it and then cover the costs of audits and inspections and when they buy equipment that complies with all the regulations, it tends to be a “custom, one off solution” which comes with an eye watering price tag.

Providing small producers have the time and the patience to get setup and accredited. They then have to compete against all the big boys in their market. And these big corporates get really aggressive, once you start to make a dent in their market share.

So it’s no wonder there are just a handful of small-scale dairy businesses around.

But small scale farmers have lots of advantages too and there are real opportunities available around the world that smaller farmers can access. You just have to do it the right way.

Turnkey Dairy Business

I’ve started the Nature Matters Milk Company to serve small scale dairy farmers and to make it easier for them to succeed.

The two main areas that bring down small dairy businesses are regulatory compliance issues and lack of a strong brand, which affects profitability.

I’m currently building and testing the systems that other small farmers can utilise. These systems have to ensure every individual farmer complies with all the regulations and also ensures that they don’t get anybody sick. That alone is a big job and much more complicated than I thought. Which is the story of my life.

I’m also slowly building a proper brand (although it's not public yet).

You Can Go Farming Too.

Once I've got all that sorted, I'll be able to provide you with all the equipment (at reasonable prices) needed to milk cows, pasteurise milk, package milk & deliver milk to their local community. By the way, it won't look anything like my current setup either.

You'll operate under my RMP & I'll provide you with complete training and step by step manuals on everything you need to know.

I'll audit you regularly and my system will ensure you are recording & complying with everything you are meant to.

What this means is you can start a small dairy business that is likely to be profitable from day one and you don't have to worry about the large regulatory costs, as they are split across all farmers using the system.

I'm not mother theresa, so I'll probably charge a percentage of your turnover as my fee. This means if you're not successful then neither am I.

That's just a quick run down on the principle of how the business will run. Essentially I'm taking away the costly boring stuff and letting you get on with farming and providing outstanding customer service.

Who's Keen?

These things cost quite a bit of money to develop, which is why I approached the Sprout programme. I hope to be able to bring on a financial partner or partners who can provide the funding to fast track the development so we can get rolling.

In the meantime, if you think you might like to set up your own micro dairy then drop me an email glen@naturematters.co.nz.

I’ve got no further info at this stage, so please don't email me with lots of questions.

I'm just creating a list of people who are interested in going farming in the Nature Matters Milk style.

If you're keen, email me with:

Your name

What you doing at the moment

Where you from

Why you are interested.

I've got no other information, so please don't ask me questions. I'll let everybody know when I've got more to say.

Cheers

Glen