24 May

Why we won’t under price our product

Pleasant Meadow Creamery was formed out of a love for good, high quality, Guernsey milk.

Guernseys used to be the number 2 ranking cow in the US as far as quantities of cows went. As Americans demanded more from a cow, the Holstein-Friesian began its rapid ascent and modification, and the Guernsey fell out of favor. Americans love big production on anything.

However, we believe Guernseys produce a superior product and, in fact, independent lab testing by a fellow dairyman of ours confirms that Guernseys, for several traits, produce a superior milk.

A superior product deserves a livable price.

This could just have been as easily titled – why we cannot under price. Just doing a little blogging when I see prices of milk in other markets to the west (higher to much higher), or when I see some people attempting to produce and sell much lower, at this scale (less than 20 cows), or when I see people jumping at the chance to buy cheaper milk 30 miles away from them, that’s not as clean, etc.

I hope you’ll give this a read. I am not aspiring to be the next Joel Salatin. No time for that. Too busy farming. But I do have thoughts on the subject, and I am starting to gain valuable experience. Sustainable farming is a partnership between the consumer and the farmer. It is me helping you to understand. How do we pay a fair wage? How do we have a clean grade A facility and not too much debt? How do we pay for the reefer delivery van and the $3000 unexpected tractor repair bill right before haying season? How do we deal with and/or replace the unexpected dead cow (and yes, sadly, they sometimes die), and they are worth so much!

How do we compete against other, well-meaning, locals who either do not have the numbers acumen or experience to understand their $3 milk is a money loser for them. They may be content to lose money, but in the process, they hurt those of us who may actually want to serve the local community this superior product, reliably, throughout the whole year, not just during “spring flush” or when ole Bossy is in her first hundred days of her two year lactation.

Look at the local landscape. Do a Google search on the raw milk dairies throughout Idaho, or Washington. Do you know how many of them have gone out of business in the last 5 years? Did you know that there is a 90 percent or greater chance of each new one going out of business in the next five years? That means a new one today most likely will not be here in five years, and it’s not just the numbers that are going to push them out – it’s the harsh reality of the lifestyle. It take a special kind of person to do this. What looks good on paper is very different when you are actually doing it, and it’s even more different when you’re losing money the first five years. How would you feel losing money and not having had a day off in over a year? We’re not just talking 8 hour working days either. It starts early in the morning and ends with your blog post at 10pm.

And how do we do it without government subsidies, all the while competing against milk that is heavily subsidized and is putting the very farmers who produce it out of business?

In America, it used to be a family could support itself off 20 cows. In fact, not only could they support themselves, but they could do quite well. Though, unlike today, all members of the family had to work, contributing to the common wealth of the family.

These days, most dairies that milk cows are losing money, and have been for 4 years. There is no hope in the near future this will turn around. In the meantime, dairy farming families are selling out by the hundreds every year.

By the time prices come back up above production costs, most smaller, family dairies will be gone. With them, will disappear rural landscapes, and many other jobs that were supported by local, family farms.

Being a CPA, I’ve studied the economics of dairy extensively, and I have experience to back up my cost estimates and pricing calculations.

Our milk, at the wholesale price, is priced to produce up to a 20 percent profit margin for 20 cows producing, and all fluid milk produced sold. On gross revenues of $200,000, this means the owner would make just $40,000 profit, and there would be one or two well-payed employees with employee housing. That profit number is a little lower than I’d like to see, and that is with making all your own hay, but the reality is the costs of everything are high.

Examples:

  1. We use a lot of electricity in winter and summer. We have coolers to run, compressors to run, wheel line irrigation to run, etc. The list is extensive and our power bills are easily in the $500 per month range for much of the year, and over $1000 during irrigation season.
  2. The equipment we use is very expensive. A good used tractor is at least $40,000. A baler – at least $20,000. A good manure spreader (which is critical to our operation) – at least $20,000. The land itself is not cheap. The buildings, which we build ourselves, cost in the tens of thousands in materials alone, and the labor is thousands of hours per building.
  3. Repairs and maintenance. We took a tractor in for maintenance recently. It had blown a critical component in the front wheel drive portion of the 4 wheel drive. Parts alone are $2000, and the labor is $100 per hour.
  4. We have to pay at least $12 per hour and provide housing to attract qualified people for these positions. All of our positions are full time. This means just the person who does most of the milking of the cows is going to cost us at least $30,000 per year, and there are many person hours that go into this operation other than milking cows.
  5. The new glass bottles we’ll be in – at least $2 per bottle.
  6. The bottle wash machine – at least $12,000.
  7. The bottle filling machine – at least $14,000.
  8. The list goes on. The infrastructure for a grade A facility is tremendous.

Sustainable farming is profitable farming. If you don’t want to see your rural landscape turn into housing tracts, you have to be willing to support sustainable farms, which means milk that isn’t $3 per half gallon. It means eggs that aren’t $2.50 per dozen. It means beef on the hoof that is more than the live cattle futures prices by at least ten percent.

If you don’t want housing tracts everywhere, you have to be willing to NOT undercut your farmer by going the cheapest route. Most milk on the grocery store shelf is producing a loss for the farmer and is putting him or her out of business. Sure you got milk cheaper than water, but that farm family went out of business and is joining you in your ‘burbs.

A fair wholesale price for certified organic, grass-based milk, is going to be at least $4, and if you want it from a store, well they have to pay their employees, their cooler bills, their insurance, their this and their that, and we have to pay to get the milk to the stores. By the time you tack that on, you are at least 20 percent more for wholesale to retail, and dairy, frankly, has the lowest markup of most products in the modern grocery store.

If you’re thinking about driving to a “somewhat local” backyard or small scale farmer to get your $3 milk, consider the value of time and the cost of driving your vehicle. The federal vehicle mileage deduction rate isn’t between 50 and 55 cents per mile for nothing. It is that because it actually costs that to drive, when you consider repairs, fuel, depreciation, etc.

By the time you get that milk, have you really gotten it for $3, or is it now $4 or $5?

Please be willing to support sustainable family farms. We are not trying to rip you off, and we certainly are not price gouging you. To start a new dairy, or many other types of farms, is five years of losses before the first miniscule profit shows up.

Thank you for your support, and please support your local farms if you value what is good and right and good for you!