Ready to Grow? Mastering the Art of Expanding with a Second Dairy
In recent years, a noticeable trend has emerged in the dairy industry, where dairy farmers are opting to purchase a second dairy farm instead of expanding their existing operations. Multiple factors contribute to this trend, including rising costs associate with building or expanding a new dairy, permitting challenges, limited available land for increased feed production and manure disposal, insufficient milk processing capacity in certain areas and fluctuating interest rates. Moreover, acquiring an existing dairy offers the advantage of immediate income generation compared to waiting for a new dairy construction to yield returns.
As the trend gains traction, prospective buyers should carefully consider these factors before venturing into the purchase of a second dairy farm:
- Expandability of the Operation: Assess whether the chosen dairy farm can accommodate an expansion to milk more cows. Evaluate the current site’s layout to determine its potential for adding a free-stall barn and expanding the existing milking parlor.
- Cost Considerations: One of the primary motivations for acquiring an existing dairy is the cost advantage. Purchasing a new dairy can run anywhere from $7,000 to $10,000 per stall, while acquiring an existing dairy may cost between $3,500 and $5,000 per stall, or even less in some cases. These cost savings are crucial in assessing the financial viability of a second dairy.
- Quality of the Facility: Not all dairy farms are created equal. Each facility was designed to meet the needs of its previous owner, which may not align with your requirements for efficiency and profitability. Be prepared to invest additional capital to bring the facility up to your individual standards.
- Location: Ideally, the second dairy should be located in close proximity to your existing operation, but this is often not the case. Consider the challenges of managing a dairy that may be in a different county, several counties away, or even in another state. Ensure your management team is prepared for the potential logistical challenges.
- CAFO Permitting: Investigate the current status of the dairy’s Concentrated Animal Feeding Operation (CAFO) permitting process. Determine whether the farm currently holds a CAFO permit or if it will fall under your existing permit. Be aware of the requirements and potential capital cost associated with the permitting process. Consult with engineers or Department of Natural Resources representative for guidance.
- Infrastructure: Evaluate the dairy infrastructure in the new location. Check if there are milk processors nearby with the capacity to handle your milk. Don’t assume that the existing processor will continue to services after the ownership change. Consider the availability of dairy equipment dealers, veterinary services and nutritionists in the area.
- Land Availability: Ensure that sufficient land is available for feed production and manure disposal. You may not need to purchase the land, but securing it is essential. Investigate the competition for land in that area by consulting with the current owner and local farmers.
- Management System and Capability: Perhaps the most crucial aspect is assessing whether your current management system can be effectively duplicated on the new dairy, regardless of its location. If not, it’s essential to establish a robust management system or acknowledge that you may not be ready to manage another dairy. A lack of sound management can lead to overwhelming challenges that set the operation back.
The decision to acquire a second dairy farm involves numerous considerations. Thorough research and gathering as much information as possible are essential steps to ensure the success of your future operation. Make informed choices that align with your long-term goals and aspirations in the dairy industry.