After meetings with more than 60 dairy producers, this insolvency attorney offers a few sobering insights on common problems.
By Riley Walter, attorney
Happy New Year. I certainly hope that this year is better for my dairy clients than the last three have been. We can all hope for sunshine, rain and sensible political and regulatory policies. Hope springs eternal.
In my last several columns, I have made comments about my observations of things learned as an insolvency lawyer representing dairymen during the California dairy crisis. I have now seen approximately 61 different dairymen from eight contiguous California counties, plus a few from Texas, Idaho and Arizona.
Here are some further observations.
First, dairies are not alike. Those of you in the dairy business know this. Those of us who are not in the business lump things together and say that if you milk cows, you are the same as the person next door. Nothing could be further from the truth. The kind of barn, the kind of management, the kind of herd management, etc., make each and every dairy pretty much unique. While there are many similarities, they are far from identical. However, bank lawyers and judges have a tendency to think they are identical to one another. Not so.
Second, dairymen seem often to think that if they would just work harder it will be okay. There is a limit to how much you can work, and working smarter is almost always better than working harder. I sense that "working harder" means to flee the harder task of making changes in the way you work.
Third, if I have heard it once I have heard it 61 times. If I had more cows, it would solve the problem. So far, almost none have commented on focusing on how to get more milk per cow. Maybe it was different years ago, but today the objective has to be to wring as much milk per cow, taking the costs into consideration. More cows are not necessarily the answer.
When stressed and under great pressure, many dairymen will flee the office to "work with the cows." We all have a flight instinct, and this is how many people seem to avoid making hard financial decisions. I bet I have seen this 20 times. The dairyman has to make a very difficult decision but refuses to do so by "having to go sort cows." The problem was still there when the sorting was finished.
The lawyers and accountants who come into the picture late in the game get put into the stack of already owed bills. Dairymen, as a group, do not recognize that the people who are trying to help get them out of the mess sometimes have to be paid ahead of those who are already owed. This may be self-serving, but my accountant friends tell me it is okay to say this. The days of "you get paid when I get paid" are over. Professional practices do not work this way anymore.
In far too many cases, I have learned that sons and daughters of dairymen have been dissuaded from higher education "because they’re needed on the dairy." I have heard it said that it does not require an education to be a dairyman. This is really short-sighted. If anything, dairies are among the most complicated agricultural enterprises that exist. More education, rather than less, would probably be good for the industry. There would also be benefits to sending the sons and daughters off the dairy for a few years to get new and different ideas and then, perhaps, bring them back to the dairy. The dairy business is more wrapped up in cultures and traditions than most any I have encountered.
Another recurring observation is that very few of the dairymen with whom I have met know their own financial situation. The usual response to the financial question is, "I will have to ask my accountant." And, of course, this means the information is usually not current and is often a quarter or more behind, if not more. And, if the dairyman has not been paying the accountant, it may be much further behind and therefore useless.
The last observation is that I have been told repeatedly that "cows are more important than management." Many seem to believe that herd maintenance, which is incredibly important, is more important than the day-to-day management. It is my prediction that when this crisis subsides, dairymen seeking loans are going to find that those dairymen with absolutely up to date, reliable financial records will stand a chance of getting the loan. The "shoebox, hand-ledgered guy" will not.
In my next column, I will address additional observations in the hope folks will see that some major changes in style, approach and ability are coming to the dairy industry, and those who will make it think and act differently from those who will not.
Riley Walter is an attorney and founder of the Central Valley-based Walter & Wilhelm Law Group, a law firm specializing in agribusiness, reorganization and bankruptcy. Contact him at 559-435-9800 or RileyWalter@W2LG.com.