As the saying goes, “the best marriages have the best communication.” When it comes to a partnership between two or more smaller dairies, “it’s almost like a marriage,” says Vern Newhouse, one of four owners of a dairy in northeast Wisconsin. “You’ve got to be able to work together and be able to give and take.”
Newhouse and partners Jerry Evers, Mark Van Asten and Joe Van Asten know that in order to gain efficiencies in a rapidly-changing industry, small dairies have to communicate and cooperate. That’s why they’ve teamed up to form Neighborhood Dairy, LLC, in Freedom, Wis.
Producers who operate small dairies don’t have to feel pushed out, even though the industry is increasingly populated by dairies with 400 cows or more. Instead, they can gain some of the same efficiencies that the larger dairies enjoy by joining forces.
For small-scale operations — those averaging 100 cows or less — the thought of expansion can be frightening, and maybe even a little discouraging. That was the case for Mike Lee, a 60-cow producer from Middlebury, Ind. While Lee was able to keep the bills paid, he didn’t seem to be building equity. He knew something had to change so he could stop “spinning his wheels.”
That change came when Lee merged his assets with those of neighbor Mike Yoder. Each brought different equity to the newly-created Crystal Valley Dairy Farms, LLC. Lee had a 60-cow herd; Yoder, a 180-cow herd.
By combining equity, small dairies can secure more capital for a building project, says John Roach, a consultant with F&L Farm Business Consulting, LLC, in Seymour, Wis.
For Lee and Yoder, combining their equity meant they were able to spread their financial risk over more assets. And, they were able to invest in a new free-stall facility, buy additional cows to bring the herd up to 470 cows, and add manure storage.
Combining equity doesn’t mean you have to expand. In some cases, combined equity can make a parlor more affordable without adding lots of cows or borrowing substantial sums of money on your own, says Bruce Jones, director of the Center for Dairy Profitability at the University of Wisconsin. That can make it possible for smaller-sized dairies to gain the production efficiencies and labor savings that larger dairies enjoy.
“The way technology is changing, you’ve got to be a specialist in your field,” says Newhouse, of Neighborhood Dairy in Wisconsin. And, that’s just the case at this 460-cow operation. In fact, each owner specializes in a certain area. Newhouse manages the crop enterprise and serves as CEO, Evers serves as mechanic and dry cow manager, Mark Van Asten is herdsman, and his brother, Joe, manages the milking parlor.
Likewise, Jim and Sandie Fitzgerald, along with daughter Kelly Goehring, merged with Bob and Karen Linsmeier to form Soaring Eagle Dairy, LLP, in Newton, Wis. The merger allowed them to divide responsibilities equally among the five owners, resulting in more specialized management.
Jim Fitzgerald is the general manager, while Sandie Fitzgerald serves as financial manager for the 500-cow dairy. Bob Linsmeier is the feeding manager, and Karen Linsmeier manages the parlor and employees. As herdsperson, Goehring is responsible for duties such as herd health and hoof trimming.
One of the things the partners at Soaring Eagle Dairy wanted to accomplish was improved labor efficiency. After almost three and one-half years as partners, they’ve been able to improve labor efficiency from 0.7 million pounds of milk per worker to 1.3 million pounds of milk per full-time employee. And, they’ve been able to drop their production cost to nearly $10 per hundredweight.
Small dairies also can gain economies of scale by working together. In some cases, that may mean two or more dairies “buying in bulk” to reduce the cost of feed or equipment.
At Soaring Eagle Dairy, the merger allowed the partners to spread the cost of a milking parlor and equipment, such as a TMR mixer, over more cows.
Joint venture considerations
Two or more smaller dairies can gain efficiencies by working together or merging their assets. However, it can be challenging to go from working independently to working with other people.
Keep the following considerations in mind when establishing a joint venture:
- Be willing to give up some control.
- Realize you will not always agree with your partners.
- Determine which person will be the CEO.
- Set personal and business goals for the families involved.
- Develop a business plan.
- Develop a financial plan.
- Ask an outside source, such as a consultant or county extension agent, to negotiate the partnership and then come back a year later to evaluate the business.
- Develop an exit plan — a way for someone to leave the business — with the help of your consultant.