value-added dairy · 1/23/2020 · value-added dairy finding value through feasibility analysis...
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Value-Added DairyFinding Value Through Feasibility Analysis
Sarah CornelisseSr. Extension Associate
Ginger Fenton, PhDExtension Educator
Value-Added Options
Products Production MarketingCheeseButterFlavored milksYogurtIce CreamKefirCottage CheeseRaw milk
Grass-fedOrganicGoat or sheepA2Breed-specific
Branding programsLocalFarmers’ MarketsOn-farm MarketsCommunity SupportedAgriculture (CSA)
Restaurants
Frozen Desserts
Ice CreamGelatoSherbet
Concentrated ProductsButterDry milk & whey
ingredients
Fluid ProductsMilk
Whole, 2%, 1%, skim
Flavored CreamHalf & Half
Cultured ProductsYogurt
Whole, low fat, Spoonable, drinkableSpecialty – Greek,
otherSour Cream
DipsCream Cheese
Flavored spreads
CheeseFresh/AgedPasteurized milk, raw milkCheddar, Colby, JackSwiss, Alpine stylesGouda, Edam, HavartiMozzarella, ProvoloneParmesan typesBrie, Camembert Bloomy (white mold)
ripenedBlue Washed-rindChevre, fresh goatOpen class – hard, semi-
soft,surface-ripened
Dairy Products
Slide by Kerry Kaylegian
Aspects of Pennsylvania Value-Added Dairy
02,0004,0006,0008,000
10,00012,00014,00016,000
Num
ber o
n Fa
rms
PA Milk Goats
Data Source: https://www.nass.usda.gov/Statistics_by_State/Pennsylvania/Publications/Annual_Statistical_Bulletin/2017-2018/2017-2018%20PA%20Annual%20Bulletin.pdf
Aspects of Pennsylvania Value-Added Dairy
2013o 186 permits for raw fluid milk
and manufactured aged cheese 60 days
2016 o 73 permitted raw milk
producerso 40 permitted raw milk aged
cheese producers0
102030405060708090
2017 2018 2019
PA Raw Milk Permits
Raw Milk ProducersRaw Milk BottlersRaw Milk Cheese Manufacture
Direct sales of milk?
Make cheese?
Transition to organic?
Is this a viable idea to proceed with?
How Do You Determine?
• Market analysis• Technical/Production analysis• Financial analysis
Market Analysis
Demand
Target market
Competition
Market channel & outlets
480
500
520
540
560
580
600
620
640
660
Poun
ds p
er P
erso
nPer Capita Consumption, All Dairy Products, milk-
equivalent, milk-fat basis
Data Source: https://www.ers.usda.gov/data-products/dairy-data/
Source: https://www.statista.com/statistics/237257/dairy-products-expenditures-of-united-states-households/
0.0
5.0
10.0
15.0
20.0
25.0
30.0
35.0
40.0
0
50
100
150
200
250
30019
7519
7619
7719
7819
7919
8019
8119
8219
8319
8419
8519
8619
8719
8819
8919
9019
9119
9219
9319
9419
9519
9619
9719
9819
9920
0020
0120
0220
0320
0420
0520
0620
0720
0820
0920
1020
1120
1220
1320
1420
1520
1620
1720
18
Tota
l Che
ese,
Pou
nds p
er P
erso
n
Flui
d m
ilk, P
ound
per
Per
son
Per Capita Consumption, Fluid Milk and Cheese
Fluid Milk 2/ Total Cheese, Amer. & Other
Data Source: https://www.ers.usda.gov/data-products/dairy-data/
0.00
10.00
20.00
30.00
40.00
50.00
60.00
70.00
80.00
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Poun
ds p
er p
erso
n
Per Capita Consumption, Fluid Milk, by Type
Whole Reduced-fat (2 % milk fat) Low-fat(1 % milk fat)
Flavored, total
Data Source: https://www.ers.usda.gov/data-products/dairy-data/
0.0
5.0
10.0
15.0
20.0
25.0
30.0
35.0
40.0
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Poun
ds p
er P
erso
n
Per Capita Consumption
Yogurt Butter Cheese
Data Source: https://www.ers.usda.gov/data-products/dairy-data/
0.00
0.50
1.00
1.50
2.00
2.50
3.00
3.50
4.00
4.50
0.00
2.00
4.00
6.00
8.00
10.00
12.00
14.00
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
POU
NDS
PER
PER
SON
POU
NDS
PER
PER
SON
Per Capita Consumption, by cheese variety
Cheddar Mozzarella American, other than cheddar 1
Italian, other than Mozzarella Swiss 2 Blue 3
Brick Muenster Cream and Neufchatel
Hispanic 4
+44%
+18%
+7%
-1%
+44%+46%+3%
Data Source: https://www.ers.usda.gov/data-products/dairy-data/
Data Source: https://www.ers.usda.gov/data-products/dairy-data/
+35%
+570%
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
16.019
7519
7619
7719
7819
7919
8019
8119
8219
8319
8419
8519
8619
8719
8819
8919
9019
9119
9219
9319
9419
9519
9619
9719
9819
9920
0020
0120
0220
0320
0420
0520
0620
0720
0820
0920
1020
1120
1220
1320
1420
1520
1620
1720
18
Poun
ds p
er P
erso
n
Per Capita Consumption, Butter and Yogurt
Butter Yogurt
Data Source: https://www.ers.usda.gov/data-products/dairy-data/
0.0
5.0
10.0
15.0
20.0
25.0
30.0
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
Poun
ds p
er P
erso
n
Per Capita Consumption, Frozen Dairy Products
Regular Reduced fat Total Ice Cream
-26%
-33%
0%
Cheese Consumption Frequency
+Mintel, Cheese – US – September 2018
2018 2019
+Mintel, Cheese – US – October 2019
Assessing Your Market - Consumers
• Are consumers interested?o End users or intermediate buyers?o Demographic, geographic, psychographic,
behavioral traits?• Have you identified primary and secondary
markets?• Consumer price sensitivity?
Preferences for Farmstead, Artisan, and Other Cheese Attributes
Figure 5. Estimated premium of WTP for selected cheese attributes
Wang, Q., E. Thompson, and R. Parsons. 2015. Preferences for Farmstead, Artisan, and Other Cheese Attributes: Evidence from aConjoint Study in the Northeast United States. International Food and Agribusiness Management Review. Volume 18 Issue 2
Competitive Landscape
• How “big” is each?
• What is their market share?
• What are their product attributes?
• How have they grown?
• What resources do they have?
• What is their image?
• What segment do they target?
• How do you compare to them?
Market Channels & Outlets
Are you selling through the right channels?
How will the product make it to the buyer?
• Number and type of marketing outlets• Distribution channels • Market location/Retail space
Market Channels & Outlets
• How and where will product(s) be marketed?
Distribution Options Market Channel Options
Self-distribution Food service
Packers, brokers Retail stores
Co-operative Specialty stores
Non-profit Non-profit
Institutions
Direct to consumer
Market Channel Pros & Cons
Wholesale• Lower price/lb• Less seasonal• High delivery efficiency• Low level of interaction
w/ end users• Higher volume sales,
enabling higher usage of milk
Retail• Higher price/lb• More seasonal• Low delivery efficiency• High level of
interaction w/ end users
• Gateway to potential wholesale customers
Technical Analysis
Facilities & Equipment
Labor & Management
Inputs
Motivation
Is value-added dairy feasible for the farm?
Why do you farm?
Are you a “cow” person?
Are you passionate about creating a product?
What is your mindset?
What is your personality type?
Are you willing to educate consumers?
Would a value-added business fit your lifestyle?
What is your mindset?
How much milk will you need?
100% of production Portion of
productionPurchase milk
Is production where it needs to be?
• Right herd for intended product(s)o Quality, quantity, genetics
• Allowing for transitionso Diet, grazing requirements,
exercise, housing, herd health program
Is milk quality where it needs to be?
• Milk quality for processingo SCCo Bacteria counts
• SPC, PIC, LPC, Coliform
o Components• Storage • SOPs for milking,
herd health, sanitation
Is Your Farm the Right Fit?
• Appearance• Access to markets,
transportation• Retail
Location, location, location
Will more visitors be coming to your farm?
Do you have a plan for management?• Managing labor for farm and
processingo Family involvement or hired laboro Need expertise in farming and
processingo Segregation of dutieso Production scheduleo Control of traffico Transportation and retail of product
• Farm management o Supportive of enterpriseo Consistento Attention to detail
• Support network
What about the processing facility?
• Need separation from farm operations• Products will dictate equipment needs• Plan review with regulators before
construction• Consider cleaning and sanitation• Don’t overlook storage space needs• Water quantity and quality• Waste and wastewater disposal
What about regulatory requirements?
• Plan ahead and have conversations early• Building permits if new facility• License from PA Dept. of Ag• Register with FDA• FSMA Requirements
o Good Manufacturing Practices (GMPs)o Food Safety Plan
• Find a lab for testing• Third party audits
Are there alternatives to processing at the farm?
Manufacture in facility off the farm
Contract with your label
Form cooperative
Purchase product to retail
Financial Analysis
Start-up Costs
Operating costs
Financing
Revenue & Profitability
Investment Requirements (Cheese)Building/Systems• Piping• Flooring
o Heated flooring (temp regulation in winter & worker comfort)
• Wall materials – poly boardo Floor/wall junctions
• Refrigeration• HVAC – for storage & venting for air
circulation• Whey handling/mgmt/drainage
system• Hand-washing stations – wash,
rinse, sanitizer, & hand wash• Processing room• Aging room• Refrigerator for storing
cultures/rennet• Packaging room
Equipment/Supplies• Cheese vat• Heater for heating cheese vat• Batch pasteurizer • Brine tank• Sinks• Drainage racks/table• Cheese press• Cheese molds/hoops• pH meter• Antibiotic tester• Measuring cups• Graduated cylinder (for measuring rennet)• Scrub brushes/squeegees• Curd knife (a couple sizes depending on types of
cheese being made)• Stirrer• Measuring stick (measure milk quantity in vat)• Poly board for pressing gouda/swiss• French fry cutter/knives for cheddar• Cheese clothes• Thermometer• Gram scale• Storage racks• Packaging equipment (cutting table, vacuum wrapper
or cheese paper, scale, labels
Enterprise Budget
Income
Variable Expenses
Fixed Expenses
Returns to Mgmt.
Quantity Units Value TotalIncomeCheese SalesWholesale Sales 85% 21,250 pounds $8.00 $170,000.00Retail Sales 15% 3,750 pounds $12.00 $45,000.00
Total Sales $215,000.00
Quantity Units Cost TotalVariable ExpensesMilk 2,500 cwt $18.00 $45,000.00Payroll expense 5,525 hours $10.50 $58,012.50Utilities 25,000 pounds $0.21 $5,250.00Outside smoking 640 pounds $7.68 $4,915.20Sanitation supplies 25,000 pounds $0.16 $4,000.00Employee healthcare 25,000 pounds $0.09 $2,250.00Office supplies 25,000 pounds $0.04 $1,000.00Bank charges 25,000 pounds $0.02 $500.00Training & education 25,000 pounds $0.01 $250.00Outside testing 25,000 pounds $0.004 $100.00Operating interest expense 25,000 pounds $4,576.66 $4,576.66Marketing expense % sales 16% $34,400.00Total production expenses $160,254.36
Fixed ExpensesCreamery non-food processing equip. 1 year $1,646.75 $1,646.75Creamery processing equipment 1 year $10,535.70 $10,535.70Insurance 1 year $12,736.75 $12,736.75Legal and professional fees 1 year $3,963.75 $3,963.75PA Corporate tax 1 year $31.00 $31.00Repairs and maintenance 1 year $3,065.90 $3,065.90Telephone 1 year $2,561.50 $2,561.50Interest 1 year $533.69 $533.69Total Fixed Expenses $35,075.04
Total Expenses $195,329.40Returns to Management $19,670.60
Financing Considerations
• Are you comfortable with your current level of debt?o Will you need to take on more debt to start this
enterprise?• Have you investigated all of your financing
options?• Are the financial resources available for
start-up or transition?• What is the projected profit potential?
Pricing Questions
• Have you projected your cost of production?o What is your breakeven price or production
level?• Have you included marketing expenses in
your cost of production and pricing?• Have you considered all pricing methods?
Breakeven Analysis
Breakeven Yield
= 𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇 𝐶𝐶𝑇𝑇𝐶𝐶𝑇𝑇𝐸𝐸𝐶𝐶𝑇𝑇𝐸𝐸𝐸𝐸𝑇𝑇𝑇𝑇𝐸𝐸𝐸𝐸 𝑃𝑃𝑃𝑃𝐸𝐸𝑃𝑃𝐸𝐸
= $200,000$8.00
= 25,000
Breakeven Price
= 𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇 𝐶𝐶𝑇𝑇𝐶𝐶𝑇𝑇𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝑃𝑃𝑇𝑇𝐸𝐸𝐸𝐸 𝑃𝑃𝑃𝑃𝑇𝑇𝐸𝐸𝑃𝑃𝑃𝑃𝑇𝑇𝐸𝐸𝑇𝑇𝑃𝑃
= $200,00025,000 𝑇𝑇𝑙𝑙𝐶𝐶
= $8/lb
Investment Analysis
What return do you expect on your investments?
What returns are you currently realizing?
How risky is the project?
What is the current inflation rate?
Investment Analysis
Assume $175,000 investment • Good for 10 yrs.
Source: Cornelisse (Roth), S., A. Gloy, J. Hyde, and B. Kelly. (2008). “Get More from Your Milk: Increasing Profits through Value-Added Products. College of Agricultural Sciences. Agricultural Research and Cooperative Extension. Pennsylvania State University, University Park, PA, 40pp.
Profitability:Survey of Grass-based VT Dairies
• Data from 71 grass-based dairies in VT• Average sales from value-added $7554
o $772/cow profit for value-added groupo $290/cow for interested groupo $412/cow for not interested group
Source: Wang et al. (2016) at www.joe.org
Feasibility Study Business Plan
Weighing the options
• Gather information• Consult others
o Teamo Specialistso Entrepreneurs
• Consider all aspects o Time, $$$, labor, desire to
make products, skills needed, markets, …
Where to look for resources
• Industry groups, associations, or guilds
• Food science programs https://foodscience.psu.edu/workshops
• Regulatory agencies –state and FDA
• Extension - https://extension.psu.edu/
Sarah [email protected]
Ginger [email protected]
Kerry [email protected]
Thank you!
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Photo credits:• Slide 2: #1 Olga Krig, bigstockphoto; #2 KlaisHausmann, pixabay; #3:monkeybusinessimages,
bigstockphoto• Slide 3: Milk Carton: iStock.com, #629534010, vladwel• Slide 4: S. KlaisHausmann, pixabay• Slide 6: PSU Extension Dairy Team File photo, 2014• Slide 9: monkeybusinessimages, bigstockphoto• Slide 21: #1: S. Cornelisse, #2: S. Cornelisse• Slide 25: all photos: K.E. Kaylegian• Slide 26: PSU Extension Dairy Team File photo• Slide 27: G. D. Fenton• Slide 28: G. D. Fenton• Slide 29: #1 G. D. Fenton, #2 G. D. Fenton, #3 PSU Extension Dairy Team File photo• Slide 30: S. Cornelisse• Slide 31: G. D. Fenton• Slide 32: #1 G. D. Fenton, #2 G. D. Fenton• Slide 33: #1 G. D. Fenton, #2 G. D. Fenton• Slide 34: PSU Extension Dairy Team File photo/H. A. Weeks• Slide 36: PSU Extension Dairy Team File photo, 2018• Slide 38: Stevepb, pixabay• Slide 44: https://pixabay.com/en/us-dollars-american-background-bank-84594/• Slide 48: G. D. Fenton