Hope seen for Small Dairy Plant - Featuring Ken Becker

Barton Chronicle 9/24/03
Hope seen for small dairy plant
by Bethany M. Dunbar

WESTFIELD - A small-scale yogurt or cheese plant supplied by five 100-cow dairy farms is an economically feasible idea, according to a report released Tuesday.

The report was written by Ken Becker of the University of Vermont, with help from a graduate student. Mr. Becker is formerly the deputy commissioner of agriculture and executive director of the Northeast Dairy Compact. The 88-page report was based on a detailed study paid for by a $29,000 Community Development Block Grant applied for by the town of Westfield.

"I'm fairly optimistic that there is hope for the dairy industry in this state," Mr. Becker said after going over the report with a handful of people who turned out for its unveiling.

This project started with a group in Westfield almost three years ago. The movement was started by a group of farmers discouraged with the price of milk, which is determined by a complicated federal formula.

One part of the research was going around talking to people who currently run dairy plants in Vermont. One table in the report shows the changes in the industry since 1985. In 1985, there were 11 fluid milk processors in Vermont. In 2003 there are four. In 1985, there were 16 cheese plants, and today there are 38. The number of plants making ice cream, yogurt and other soft products has remained about the same. There are four today compared to three in 1985. And there are three whey and dry powder plants compared to two in 1985.

Mr.Becker pointed to those numbers as one indication of what is likely to be feasible. There are more cheese plants these days because it's possible to make some money, he suggested.

"You take a bath in the fluid milk business," he said about the costs and income. He said it takes such an enormous economy of scale to make money bottling regular milk that most small companies simply stopped.

"Dean Foods got big because other folks got sick of it," he said.

That is not to say organic milk in a glass bottle can't make money, he added. His figures are based on the assumption that the milk from the new plant would be average milk, cheese or yogurt, not a high-end specialty product.

Mr. Becker did charts for six possible scenarios: a fluid milk operation using the milk of 50 cows; one for 500 cows; and cheese and yogurt plants of both sizes. The chart for the fluid milk plant for 50 cows shows it losing money for ten years, for a total loss of $2,169,781. The larger fluid milk plant shows a loss for the first five years and then some small profits, so that the total profit in the first ten years would be $811,079.

The small yogurt plant shows a loss for the first two years, then growth over each year for a total profit over ten years of $2,814,018. The larger yogurt plant shows a ten-year profit of $10,710,617. The small cheese plant shows a loss for the first three years, and a total profit over ten years of $1,499,721. The larger cheese plant shows a loss in the first year, and total profits over ten years of $5,398,492.

Mr. Becker explained that one reason yogurt is more profitable than cheese is that a pound of milk makes a pound of yogurt, where it takes about ten pounds of milk to make a pound of cheese.

"Don't take this money to the bank, but it looks like it would be profitable," Mr. Becker said.

The tables include hiring a manager for $50,000 to $60,000, and an expert cheese (or yogurt) maker for $40,000 to $50,000. They include an average price paid to farmers of $13.53 per hundred pounds of milk, plus a $1 per hundredweight premium. That would mean $1.25 a gallon.

Mr. Becker said there is a lot of interest in processing right now, and state and U.S. Department of Agriculture officials have been knocking on his door to find out the results of this survey. He said he thinks there is a lot of potential for small processors, and a link could be made with tourism.

"We could be the Napa Valley of cheese," he said.

Dexter Randall, one farmer who has followed the process from the beginning, said he is about to enter into a new venture himself. He is buying some embryos from Normandy, France. The embryos will be planted in his Holstein cows and when they are born and grow up, their milk will be of the right quality for making a Camembert-style soft cheese.

Asked if there is interest in the area from five farmers to start some kind of processing plant, Mr. Randall said he believes there is.

"With this here, with good management and some luck there's a chance that some farmers could make a decent living," he said. He said no one is likely to get rich in the dairy business, but a decent living would be a nice change.

The report also investigates the possibilities for ownership of the plant. A cooperative structure or limited liability company (LLC) would offer the most advantages, Mr. Becker said. A cooperative would mean the farmers would own the business, and an LLC could take advantage of outside investors if someone was to come forward.

It would take an investment of about $1,780,000 to build a processing plant for the milk from five 100-cow farms, Mr. Becker's report estimates. If one could be rented instead, it would be considerably cheaper.

Graduate student Meghan Sheridan helped with the report. She interviewed processors and retailers and made a schematic that shows areas seen as important by people in the industry, and areas of local strengths and weaknesses in the Westfield group.