Program on Dairy Markets and Policy

Background

During the past decade there has been growing interest in "value-added" activities in agriculture, including on-farm processing and direct marketing from farm to consumer. There are a variety of reasons behind this interest, including capturing a larger share of the consumer dollar (in the hope of increased profitability), diversification of business activities to spread risk, providing a business opportunity for the next generation, and responding to changing consumer preferences for a greater connection with the source of their food. Based on this growing interest, a number of dairy farmers and other entrepreneurs have begun value-added dairy enterprises in recent years, and more are considering the idea.

Although the value-added idea has considerable initial appeal, there is limited information about the profitability and other measures of financial performance for enterprises that both produce milk and process products, or that purchase milk and process on a smaller scale. A study in 2006 found that only about half of value-added enterprises were profitable, and that there were management challenges in maintaining profitability for both the milk production and the dairy processing enterprises. The lack of information about financial performance and more successful management strategies makes evaluation of value-added dairy more challenging for individuals and companies considering them.

Project Objectives

The overall objective of this project is to provide information to current and potential value-added processors about financial performance of their enterprises and the factors that influence it. More specifically, this project will:

• Collect information about business characteristics, financial performance and marketing practices from value-added and small-scale dairy processing businesses in California, New York, Wisconsin and Vermont. This information will be collected for two years;

• Provide summary information for individual businesses participating in the project, including a income statement, balance sheet and economic costs for the milk production enterprise (if applicable) and the dairy processing enterprise;

• Provide participants with a "benchmarking" report that compares relevant measures of their financial performance to other businesses of a similar size and producing similar products;

• Summarize the information provided by the businesses to highlight the factors that are associated with stronger financial performance, for both the production and marketing practices employed by the business;

• Host a workshop to discuss the findings of the project and plan future related work.

Principal Investigators:

Dr. Chuck Nicholson , Department of Agribusiness, Cal Poly San Luis Obispo

Dr. Mark Stephenson , Director of Dairy Policy Analysis, University of Wisconsin, Madison

Collaborators:

Phillip Tong, Dairy Products Technology Center, Cal Poly San Luis Obispo

Carl Rainey, Department of Agriculture, Trade and Consumer Protection, Wisconsin

Bob Parsons, Department of Community Development and Applied Economics, University of Vermont

Andrew Novakovic, Charles H. Dyson School of Applied Economics and Management, Cornell University

Matt Ranieri, Department of Food Science, Cornell University

Student Assistants (Cal Poly San Luis Obispo):

Kate Camozzi, Dairy Science

Luke DeGroot, Agribusiness

Kassie Kampen, Dairy Science

Emily Paddack, Agribusiness

Project Funding

This project is funded by the Agricultural Research Initiative of the California State University system, with matching contributions provided by the University of Wisconsin, Cornell University, the Department of Agriculture, Trade and Consumer Protection, Wisconsin, and the University of Vermont.