Value -Added Dairy...Creamery non -food processing equip. 1 year $1,646.75 $1,646.75 Creamery...

transcript

Value-Added DairyFinding Value Through Feasibility Analysis

Sarah CornelisseSr. Extension Associate

sar243@psu.edu

Ginger Fenton, PhDExtension Educator

gdc3@psu.edu

Value-Added Options

Products Production MarketingCheeseButterFlavored milksYogurtIce CreamKefirCottage CheeseRaw milk

Grass-fedOrganicGoat or sheepA2Breed-specific

Branding programsLocalFarmers’ MarketsOn-farm MarketsCommunity

SupportedAgriculture (CSA)

Restaurants

Frozen Desserts

Ice CreamGelatoSherbet

Concentrated ProductsButterDry milk & whey

ingredients

Fluid ProductsMilk

Whole, 2%, 1%, skim

Flavored CreamHalf & Half

Cultured ProductsYogurt

Whole, low fat, Spoonable, drinkableSpecialty – Greek,

otherSour Cream

DipsCream Cheese

Flavored spreads

CheeseFresh/AgedPasteurized milk, raw milkCheddar, Colby, JackSwiss, Alpine stylesGouda, Edam, HavartiMozzarella, ProvoloneParmesan typesBrie, Camembert Bloomy (white mold)

ripenedBlue Washed-rindChevre, fresh goatOpen class – hard, semi-

soft,surface-ripened

Dairy Products

Slide by Kerry Kaylegian

Aspects of Pennsylvania Value-Added Dairy

02,0004,0006,0008,000

10,00012,00014,00016,000

PA Milk Goats

Data Source: https://www.nass.usda.gov/Statistics_by_State/Pennsylvania/Publications/Annual_Statistical_Bulletin/2017-2018/2017-2018%20PA%20Annual%20Bulletin.pdf

Aspects of Pennsylvania Value-Added Dairy

2013o 186 permits for raw fluid milk

and manufactured aged cheese 60 days

2016 o 73 permitted raw milk

producerso 40 permitted raw milk aged

cheese producers

2017 2018 2019

PA Raw Milk Permits

Raw Milk Producers

Raw Milk Bottlers

Raw Milk Cheese Manufacture

Direct sales of milk?

Make cheese?

Transition to organic?

Is this a viable idea to proceed with?

How Do You Determine?

• Market analysis• Technical/Production analysis• Financial analysis

Market Analysis

Demand

Target market

Competition

Market channel & outlets

6601975

PoundsperPerson

PerCapitaConsumption,AllDairyProducts,milk-equivalent,milk-fatbasis

Data Source: https://www.ers.usda.gov/data-products/dairy-data/

Source: https://www.statista.com/statistics/237257/dairy-products-expenditures-of-united-states-households/

3001975

TotalCheese,PoundsperPerson

Fluidm

ilk,PoundperPerson

PerCapitaConsumption,FluidMilkandCheese

FluidMilk2/ TotalCheese,Amer. &Other

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Poundsperperson

PerCapitaConsumption,FluidMilk,byType

Whole Reduced-fat(2%milkfat) Low-fat

(1%milkfat)

Flavored, total

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

PoundsperPerson

PerCapitaConsumption

Yogurt Butter Cheese

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

POUNDSPERPERSO

NPerCapitaConsumption,bycheesevariety

Cheddar Mozzarella American,otherthancheddar1

Italian,otherthanMozzarella Swiss2 Blue3

Brick Muenster CreamandNeufchatel

Hispanic4

+44%+46%+3%

16.01975

PoundsperPerson

PerCapitaConsumption,ButterandYogurt

Butter Yogurt

PoundsperPerson

PerCapitaConsumption,FrozenDairyProducts

Regular Reducedfat Total IceCream

Cheese Consumption Frequency

+Mintel, Cheese – US – September 2018

2018 2019

+Mintel, Cheese – US – October 2019

Assessing Your Market - Consumers

• Are consumers interested?o End users or intermediate buyers?o Demographic, geographic, psychographic,

behavioral traits?• Have you identified primary and secondary

markets?• Consumer price sensitivity?

Preferences for Farmstead, Artisan, and Other Cheese Attributes

Figure 5. Estimated premium of WTP for selected cheese attributes

Wang, Q., E. Thompson, and R. Parsons. 2015. Preferences for Farmstead, Artisan, and Other Cheese Attributes: Evidence from aConjoint Study in the Northeast United States. International Food and Agribusiness Management Review. Volume 18 Issue 2

Competitive Landscape

• How “big” is each?

• What is their market share?

• What are their product attributes?

• How have they grown?

• What resources do they have?

• What is their image?

• What segment do they target?

• How do you compare to them?

Market Channels & Outlets

Are you selling through the right channels?

How will the product make it to the buyer?

• Number and type of marketing outlets• Distribution channels • Market location/Retail space

Market Channels & Outlets

• How and where will product(s) be marketed?

Distribution Options Market Channel Options

Self-distribution Food service

Packers, brokers Retail stores

Co-operative Specialty stores

Non-profit Non-profit

Institutions

Direct to consumer

Market Channel Pros & Cons

Wholesale• Lower price/lb• Less seasonal• High delivery efficiency• Low level of interaction

w/ end users• Higher volume sales,

enabling higher usage of milk

Retail• Higher price/lb• More seasonal• Low delivery efficiency• High level of

interaction w/ end users

• Gateway to potential wholesale customers

Technical Analysis

Facilities & Equipment

Labor & Management

Inputs

Motivation

Is value-added dairy feasible for the farm?

Why do you farm?

Are you a “cow” person?

Are you passionate about creating a product?

What is your mindset?

What is your personality type?

Are you willing to educate consumers?

Would a value-added business fit your lifestyle?

What is your mindset?

How much milk will you need?

100% of production Portion of

productionPurchase milk

Is production where it needs to be?

• Right herd for intended product(s)o Quality, quantity, genetics

• Allowing for transitionso Diet, grazing requirements,

exercise, housing, herd health program

Is milk quality where it needs to be?

• Milk quality for processingo SCCo Bacteria counts

• SPC, PIC, LPC, Coliform

o Components• Storage • SOPs for milking,

herd health, sanitation

Is Your Farm the Right Fit?

• Appearance• Access to markets,

transportation• Retail

Location, location, location

Will more visitors be coming to your farm?

Do you have a plan for management?• Managing labor for farm and

processingo Family involvement or hired laboro Need expertise in farming and

processingo Segregation of dutieso Production scheduleo Control of traffico Transportation and retail of product

• Farm management o Supportive of enterpriseo Consistento Attention to detail

• Support network

What about the processing facility?

• Need separation from farm operations• Products will dictate equipment needs• Plan review with regulators before

construction• Consider cleaning and sanitation• Don’t overlook storage space needs• Water quantity and quality• Waste and wastewater disposal

What about regulatory requirements?

• Plan ahead and have conversations early• Building permits if new facility• License from PA Dept. of Ag• Register with FDA• FSMA Requirements

o Good Manufacturing Practices (GMPs)o Food Safety Plan

• Find a lab for testing• Third party audits

Are there alternatives to processing at the farm?

Manufacture in facility off the farm

Contract with your label

Form cooperative

Purchase product to retail

Financial Analysis

Start-up Costs

Operating costs

Financing

Revenue & Profitability

Investment Requirements (Cheese)Building/Systems• Piping• Flooring

o Heated flooring (temp regulation in winter & worker comfort)

• Wall materials – poly boardo Floor/wall junctions

• Refrigeration• HVAC – for storage & venting for air

circulation• Whey handling/mgmt/drainage

system• Hand-washing stations – wash,

rinse, sanitizer, & hand wash• Processing room• Aging room• Refrigerator for storing

cultures/rennet• Packaging room

Equipment/Supplies• Cheese vat• Heater for heating cheese vat• Batch pasteurizer • Brine tank• Sinks• Drainage racks/table• Cheese press• Cheese molds/hoops• pH meter• Antibiotic tester• Measuring cups• Graduated cylinder (for measuring rennet)• Scrub brushes/squeegees• Curd knife (a couple sizes depending on types of

cheese being made)• Stirrer• Measuring stick (measure milk quantity in vat)• Poly board for pressing gouda/swiss• French fry cutter/knives for cheddar• Cheese clothes• Thermometer• Gram scale• Storage racks• Packaging equipment (cutting table, vacuum wrapper

or cheese paper, scale, labels

Enterprise Budget

Income

Variable Expenses

Fixed Expenses

Returns to Mgmt.

Quantity Units Value TotalIncomeCheeseSales

WholesaleSales85% 21,250 pounds $8.00 $170,000.00

RetailSales15% 3,750 pounds $12.00 $45,000.00

TotalSales $215,000.00

Quantity Units Cost TotalVariableExpensesMilk 2,500 cwt $18.00 $45,000.00

Payrollexpense 5,525 hours $10.50 $58,012.50

Utilities 25,000 pounds $0.21 $5,250.00

Outsidesmoking 640 pounds $7.68 $4,915.20

Sanitationsupplies 25,000 pounds $0.16 $4,000.00

Employeehealthcare 25,000 pounds $0.09 $2,250.00

Officesupplies 25,000 pounds $0.04 $1,000.00

Bankcharges 25,000 pounds $0.02 $500.00

Training&education 25,000 pounds $0.01 $250.00

Outsidetesting 25,000 pounds $0.004 $100.00

Operatinginterest expense 25,000 pounds $4,576.66 $4,576.66

Marketingexpense %sales 16% $34,400.00

Total production expenses $160,254.36

FixedExpensesCreamerynon-food processingequip. 1 year $1,646.75 $1,646.75

Creameryprocessingequipment 1 year $10,535.70 $10,535.70

Insurance 1 year $12,736.75 $12,736.75

Legalandprofessional fees 1 year $3,963.75 $3,963.75

PACorporate tax 1 year $31.00 $31.00

Repairsandmaintenance 1 year $3,065.90 $3,065.90

Telephone 1 year $2,561.50 $2,561.50

Interest 1 year $533.69 $533.69

Total FixedExpenses $35,075.04

Total Expenses $195,329.40ReturnstoManagement $19,670.60

Financing Considerations

• Are you comfortable with your current level of debt?o Will you need to take on more debt to start this

enterprise?• Have you investigated all of your financing

options?• Are the financial resources available for

start-up or transition?• What is the projected profit potential?

Pricing Questions

• Have you projected your cost of production?o What is your breakeven price or production

level?• Have you included marketing expenses in

your cost of production and pricing?• Have you considered all pricing methods?

Breakeven Analysis

Breakeven Yield

= !"#$%'"(#)(#*+$#,-./*0,

= $233,333$5.33 = 25,000

Breakeven Price

= !"#$%'"(#);<,0#,-./"-=0#*">

= $233,3332?,333%@( = $8/lb

Investment Analysis

What return do you expect on your investments?

What returns are you currently realizing?

How risky is the project?

What is the current inflation rate?

Investment Analysis

Assume $175,000 investment • Good for 10 yrs.

Source: Cornelisse (Roth), S., A. Gloy, J. Hyde, and B. Kelly. (2008). “Get More from Your Milk: Increasing Profits through Value-Added Products. College of Agricultural Sciences. Agricultural Research and Cooperative Extension. Pennsylvania State University, University Park, PA, 40pp.

Profitability:Survey of Grass-based VT Dairies

• Data from 71 grass-based dairies in VT• Average sales from value-added $7554

o $772/cow profit for value-added groupo $290/cow for interested groupo $412/cow for not interested group

Source: Wang et al. (2016) at www.joe.org

Feasibility Study Business Plan

Weighing the options

• Gather information• Consult others

o Teamo Specialistso Entrepreneurs

• Consider all aspects o Time, $$$, labor, desire to

make products, skills needed, markets, …

Where to look for resources

• Industry groups, associations, or guilds

• Food science programs https://foodscience.psu.edu/workshops

• Regulatory agencies –state and FDA

• Extension - https://extension.psu.edu/

Sarah Cornelissesarahc@psu.edu

Ginger Fentongdc3@psu.edu

Kerry Kaylegiankek14@psu.edu

Thank you!

Penn State is committed to affirmative action and the diversity of its workforce

Where trade names appear, no discrimination is intended, and no endorsement by Penn State Cooperative Extension is implied.

The University is committed to equal access to programs, facilities, admission, and employment for all persons. It is the policy of the University to maintain an environment free of harassment and free of discrimination against any person because of age, race,color, ancestry, national origin, religion, creed, service in the uniformed services (as defined in state and federal law), veteran status, sex, sexual orientation, marital or family status, pregnancy, pregnancy-related conditions, physical or mental disability, gender, perceived gender, gender identity, genetic information or political ideas. Discriminatory conduct and harassment, as well as sexual misconduct and relationship violence, violates the dignity of individuals, impedes the realization of the University’seducational mission, and will not be tolerated. Direct all inquiries regarding the nondiscrimination policy to Dr. Kenneth Lehrman III, Vice Provost for Affirmative Action, Affirmative Action Office, The Pennsylvania State University, 328 Boucke Building, University Park, PA 16802-5901, email: kfl2@psu.edu, phone: 814-863-0471.

Penn State College of Agricultural Sciences research and extension programs are funded in part by Pennsylvania counties, the Commonwealth of Pennsylvania, and the U.S. Department of Agriculture.

The content of this presentation including text, graphics, and images, (“Content”) is educational only and not intended to be a substitute for veterinary medical advice, diagnosis or treatment. Always seek the advice of a licensed doctor of veterinary medicine or other licensed or certified veterinary medical professional with any questions you may have regarding a veterinary medical condition or symptom.

Photo credits:• Slide2:#1OlgaKrig,bigstockphoto; #2KlaisHausmann, pixabay;#3:monkeybusinessimages,

bigstockphoto

• Slide3:MilkCarton:iStock.com,#629534010, vladwel

• Slide4:S.KlaisHausmann, pixabay

• Slide6:PSUExtensionDairyTeamFilephoto, 2014

• Slide9:monkeybusinessimages, bigstockphoto

• Slide21:#1:S.Cornelisse, #2:S.Cornelisse

• Slide25:allphotos:K.E.Kaylegian

• Slide26:PSUExtensionDairyTeamFilephoto

• Slide27:G.D.Fenton

• Slide29:#1G.D.Fenton, #2G.D.Fenton, #3PSUExtensionDairyTeamFilephoto

• Slide30:S.Cornelisse

• Slide32:#1G.D.Fenton, #2G.D.Fenton

• Slide33:#1G.D.Fenton, #2G.D.Fenton

• Slide34:PSUExtensionDairyTeamFilephoto/H.A.Weeks

• Slide36:PSUExtensionDairyTeamFilephoto,2018

• Slide38:Stevepb,pixabay

• Slide44:https://pixabay.com/en/us-dollars-american-background-bank-84594/

Value -Added Dairy...Creamery non -food processing equip. 1 year $1,646.75 $1,646.75 Creamery...

Documents