The nitty-gritty of vertical integration
Karen and Jerry Dakin offer a full line of fluid milk products—full fat cream, chocolate and half-and-half.
Like most dairy farmers, Jerry Dakin and John Harrison dreamed of breaking the grip of commodity milk markets. They envisioned greener pastures by processing their milk into products that local consumers would flock to their farms to buy.
So Dakin started processing fluid milk products just a few feet away from his milking parlor near Myakka, Fla. Harrison started making and selling cheese from his Philadelphia, Tenn., dairy.
And then reality hit. On-farm processing is one thing. Marketing to a fickle market is another. Both men share their journeys below and will be featured speakers on a Vertical Integration panel at this year’s Elite Producer Business Conference in Las Vegas, Nov. 11 to 13.
Briefly describe the current size and scope of your on-farm dairy processing enterprise. Who is your primary target market?
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Dakin: We have 2,300 milking cows with all milk piped over to the bottling plant. Our primary target is distributors, restaurants and primary milk retail venues, including on-farm retail sales.
Harrison: Our plant is sized to process one load of milk (54,000 lb.) in 10 hours. However, we only run 50 to 75 production days per year. This translates into 5,000 lb. per day or more than 250,000 lb. of cheese a year. Our cheeses are priced from $6 to $8 per pound, meaning a $1.5 to $2 million gross a year. We do this with four production and packaging employees and six to eight
retail employees. Our facility is about 10,000 sq. ft. Our target customers are travelers on Interstate 75, local shoppers, regional gifting, and higher-end grocers, retail shops and restaurants.
What prompted you to vertically integrate your dairy and go into on-farm processing? How long was the planning process?
John and Celia Harrison produce more than two dozen varieties of cheese on their Philadelphia, Tenn., farm.
Dakin: I had the mistaken presumption that we could draw a higher margin by controlling both sides of the market. The planning process was approximately four years.
Harrison: Originally, it was a means to get away from the Federal Milk Marketing Orders and sell most of our fluid milk around the system.
I always had an interest in making my own cheese, going way back. Once I got serious about it, I took about a year to look at other operations and make the decision.
What type of investment was needed? Did you buy new or used equipment?
Dakin: The investment was more than what we borrowed, about 200% more than our initial budget. We acquired the proper used equipment. However, buying used equipment makes the process slow and tedious.
Harrison: We invested about $1 million in addition to the initial inventory, which I forgot to plan for. Most of the equipment was older. The building was new.
How did you obtain processing expertise? Did you attend schools? Hire experienced personnel? How did you find and recruit them?
- October 2013