Farming Magazine - June, 2012
From Wholesale to Direct Sales
One dairy makes the change
Shirley and Wayne Tullar had always been conventional dairy farmers, selling fluid milk to AgriMark. The Tullars own Berway Farm and Creamery (www.berwayfarmcreamery.com) in Lyme, N.H. Wayne's parents owned the farm from 1958 to 1990, when Wayne and Shirley purchased the farm from them.
"We were milking 175 cows, but we just couldn't make ends meet because of the low price of milk," says Shirley.
In 2006, after much discussion and planning, they decided make the three-year transition to become an organic dairy and sell wholesale organic milk, which, at the time, was touted by industry experts as a good business move to get more money for fluid milk.
However, their plans were thwarted when they discovered that the organic coop did not allow its member farms to bottle their own milk and sell direct to customers, which the Tullars wanted to do to supplement their income.
"We never did completely make it to become certified organic," says Tullar.
Photo courtesy of stuartjessop/morguefile.com.
Instead, they did an about-face and took an enterprising and daring route - they got out of wholesale milk completely and now sell their milk direct to customers.
By 2008, the farm had its own processing and bottling plant. Today, the majority of the farm's milk is sold direct to customers; any surplus milk is sold to Dairylea Cooperative, Inc.
Not an overnight transition
The transition from operating a wholesale dairy to selling direct is one that needs to be planned carefully, says John Porter, dairy specialist for the University of New Hampshire (UNH) Cooperative Extension. However, if planned right, it can mean freedom from fluctuating milk prices.
"But it takes a lot of courage ... and it's a big investment," says Porter.
"Bottling milk is the most expensive endeavor you can undertake on a dairy farm in terms of added value," adds Michal Lunak, a dairy management specialist with the UNH Cooperative Extension.
"Many small dairy farms have considered the idea of bottling their own milk since it seems like the logical way to make money on fluid milk," says Lunak. However, selling milk direct takes a lot of marketing and business finesse, he adds. Farmers need to know, for example: Will the milk be sold direct on the farm or at a market? A local and even large chain stores? Will it be sold in glass bottles? Who will do all the distributing and marketing? Who will pick up all the returnable bottles?
"If a farmer thinks that he'll manage the herd, the dairy, bottling, marketing, distributing ... that's a ticket for failure," says Lunak. "The bottling and marketing are separate jobs. You can't jump into it and right away have a market. And if you don't have the market, what will you do with all that milk?"
Dipping a toe in the market
One way to test the market and transition gradually - without having to buy bottling and processing equipment - is to find an underutilized processing plant to custom process and bottle, suggests Porter.
One working example of this strategy is Smiling Hill Farm in Maine (www.smilinghill.com), which processes milk for several dairy farms within driving distance, including Bartlett Farm Dairy of Concord, N.H., and Bohanan Farm in Contoocook, N.H.
Berway Farm and Creamery of Lyme, N.H., successfully made the transition from a wholesale operation to retail. Pictured, the dairy's milk bottle.
Photos courtesy of Berway Farm and Creamery.
"These farms are testing the market before they move toward having their own processing plant," says Porter. He advises thoroughly investigating the USDA's Federal Milk Order for your region before moving into this kind of venture.
Part of testing the market is making sure that there are enough people in your region who want to buy your milk.
"Get out there and see what people want ... it is different in every location," says Tullar, who notes that their farm is on the edge of Hanover, N.H., a wealthy demographic.
Milk processing equipment at Berway Farm and Creamery.
Tullar notes that while their farm did not opt to outsource its processing and bottling, she said that their transition was not "an overnight process."
"We didn't want to go deeper into debt, so we did a little at a time," she explains.
One strategy to stay out of debt, Tullar says, was to sell livestock and put that cash toward buying the processing equipment; the Tullars sold all their cows except 65 heifers. When the heifers calved, they kept all the offspring so the entire herd would be 100 percent grass-fed, which was what the farm intended to market via its milk label.
Selling off livestock is actually a solid capital-raising method recommended by Allan Nation, editor of Stockman Grass Farmer and author of nine books about direct market farming.
"We recommend selling a lot of cows and using that money to finance the transition from wholesale to retail," says Nation, who adds that smaller is better when selling direct. "You want to be small since it is real difficult to sell all your milk if you have a lot of cows."
Stick with low-heat pasteurization
If you determine you have a market for your milk, you may be tempted to go the raw route to avoid the cost of pasteurization equipment. However, selling raw milk direct to customers comes with its own set of problems, notes Porter.
"Liability is the big issue with raw milk. If you want to go the raw milk route the first phone call you make should be to your insurance company. Some won't even insure a farm that sells raw milk," Porter says.
"The problem with raw milk is that you're painting a target on your back for the food police," notes Nation. "Anything can go wrong."
While conventional high-heat pasteurization and homogenization processes may be out of reach financially for many small farms, one viable method some farms are opting for is low-heat (145 degrees for 30 minutes) pasteurization with no homogenization, which is marketed as "cream line" milk; it is also called "low-temperature hot water jacket" pasteurization, notes Tullar, who uses this method to create the farm's line of milk products including coffee milk, chocolate and white milk.
Low-heat pasteurization also gives small dairy farms a leg up on what makes their milk different from store-bought milk: "The flavor is better than commodity milk," says Nation. "It also give the farm an opportunity to say why: that it is hot-water pasteurized and not homogenized."
The Tullars sell their grass-fed milk locally at their farmstand.
Sell more than milk
Nation doesn't recommend putting all of your eggs - or milk - in one basket with highly perishable bottled milk. "It is much easier to transition to retail if you know how to make cheese, because you store it and its worth more when it is aged," explains Nation.
Most dairy farms that take the plunge and bottle their own milk transition to a value-added product such as cheese, yogurt or ice cream, he notes.
"You can make a good living on a dozen cows if you turn the milk into cheese or butter ... and use the whey and extra milk for pigs and chickens. Whey and milk-fed pigs bring in a high price," says Nation. "Pigs are also handy when you're learning to make cheese because they'll eat your mistakes."
The Tullars are looking toward the next step in their business: drinkable yogurt, a plan that will utilize the farm's bottling equipment. They are also toying with the idea of filling a demand in the region for 100 percent grass-fed butter. "But that would mean more equipment, and then we'd have skim milk. We're still feeling out the market and working out the bugs first," says Tullar. The farm also sells 100 percent grass-fed Angus beef on the hoof and produce.
Is it profitable?
The Tullars milk about 60 cows. Since the herd is 100 percent grass-fed they are dry throughout the winter. "We are now only milking 60 versus 175 cows ... that makes a difference in the bottom line," notes Tullar. However, that is offset by the lack of a grain bill and a lower veterinarian bill (while the milking cows are not certified organic the farm adheres to organic practices).
Milk processing equipment at Berway Farm and Creamery.
While the farm has done minimal advertising, its business is still growing due to a strong "buy local" movement in the region, she says. If the farm was still in the conventional wholesale milk business it would be getting $17.53 per hundredweight (when taking out trucking costs and national dues). Today, the farm sells its milk retail at $60 per hundredweight. "There's a substantial difference in price," she says.
There are still the high costs of running a bottling facility, including electricity, oil to run the boiler, and the cost of glass bottles.
Berway Farm and Creamery owners couldn't make ends meet selling wholesale. They sold 175 milking cows, and kept their heifers in order to pay for a milk processing plant. They now milk 60 cows.
Porter estimates that farms that sell bottled milk can expect to see 20 to 25 percent increase in revenue over wholesale prices. "Milk prices can fluctuate, but it will not be as radical as wholesale prices," he says.
While Porter has noticed that more farms are now looking into the bottle-your-own option, the roadblocks are always the same: Coming up with the capital to set up a bottling and processing facility. "The farm needs to be in a good - low debt - position to borrow the money," he says.
Berway Farm and Creamery sold livestock to pay for milk processing equipment.
There are, however, creative ways of borrowing low-interest money, Porter notes. Creative financing options are sometimes available through a region's local economic development organization. Don't forget to check into Small Business Administration financing and USDA rural development grants. "Some towns may have special monies set aside to help small businesses," he says. "The point is to look at it from a business point of view, not necessarily an agricultural point of view."
However, if successful, this kind of operation - bottling milk and creating value-added products such as cheese, ice cream or yogurt - can be a long-term solution for sustainability on small farms.
"It can be a way for the farm to survive into the next generation," says Porter.
It can also be a way to create a better lifestyle for farmers, adds Tullar. "We aren't pushed like we used to be; this is definitely a more easygoing relaxed atmosphere now."
The author is a freelance writer from Keene, N.H.