To start a dairy farm, you will find that it comes with many responsibilities. Those responsibilities have the option of paying off well for you.
The dairy industry is expected to grow 2.5% globally each year until 2025. Many parts of the world, such as Asia, are consuming more dairy, leading to an increase in demand.
No matter where you live, dairy farming starts with one factor; cattle. Knowing and understanding the animal will lead to better farming practices. Read on to learn exactly how to start a dairy farm in your neck of the woods.
How to Start a Dairy Farm
1. Identify Your Target Market and Competition
Over the last few decades, dairy consumption was in decline. This was due to the societal worry over the use of hormones, antibiotics, and perceived lack of healthfulness in some dairy products. Dairy alternatives were being sought out instead of the real thing.
Within the last 5 years, the dairy market is on the rise again. The dairy market has risen globally by 2.5% until 2020, with that upward trend expected to continue until 2025. New markets are picking up dairy where it was not as popular.
For example, Asia’s dairy consumption has been on the rise for a few years. With a rapidly growing population, dairy is a healthy protein-rich food that can keep many people fed. Milk is used to make a variety of dairy products.
With a rise in Asia’s population comes a rise in demand in the dairy industry.
Know Who will Use the Product
Children consume the most milk out of any other demographic, according to a US study. Teenagers follow closely behind, followed by young adults and adults. Milk has been long-associated with stronger bones and higher calcium intake in children.
The typical demographic for milk consumption are families with one or more child in their household. Selling cartons of milk to schools, daycares, and other child-based organizations is another potentially lucrative endeavor.
Competition in the Dairy Industry
The Asia Pacific and the European Union and leading the dairy markets globally at this time. In the US, the demand for milk production is up, but liquid milk sales are down. Milk is being used to manufacture other dairy products such as cheese and yogurt instead.
It is important to know your competition when starting a dairy farm. If you are located in dairy farmland, such as Wisconsin, identify your local competition. Study the trends within your state to have a good idea of your local competition before taking the next steps.
2. Obtain State & Federal Licensing Permits
Licensing and registration to own and operate a dairy farm vary from state to state in the US. Be sure to check with the state in which you plan on operating.
For example, Wisconsin ranks first in cheese processing in the USA. It takes a lot of milk and cows to produce that much cheese, so dairy farms have strict regulations to follow. It all begins with licensing.
The Department of Agriculture, Trade, and Consumer Protection, or DATCP is a state-run service in Wisconsin that ensures the safety and availability of dairy. The Division of Food and Recreational Safety (DFRS), a department within DATCP, handles all inspections and licensing of dairy farms.
All dairy farms and other producers must comply with state and federal regulations. These regulations keep dairy safe and healthy for consumption. There are many different permits and licenses to obtain depending on your specific field of dairy processing.
Again, these licenses vary from state to state. Check with your state government for specific licensing requirements.
Types of Wisconsin Dairy Licensing Permits
Depending on exactly what services you would like to provide within your dairy farm, your permits should match those services. Types of permits or licenses in the state of Wisconsin include:
- Dairy Processor
- Food Processor
- Food Retail
- Laboratory
- Meat Processing
- Milk Producer
- Milk Distribution/Transportation
- Other/Miscellaneous
If, for example, you wanted to run a dairy producing and processing farm with the option to sell directly to consumers via a farm-run retail store, you would need a dairy processor, milk producer, and food retail licenses in the state of Wisconsin.
3.Obtain Adequate Liability and Insurance
Unfortunately, unexpected situations can happen when starting a dairy farm. Machines can malfunction, workers can become injured, a fire could ruin your barn or livestock, or someone could allege animal cruelty on your farm. What do you do to protect yourself from the unexpected?
Several liabilities are associated with dairy farming, despite the rewarding nature of the job. As safety standards and OSHA are always improving, it is important to stay up-to-date on the latest safety measures. These liabilities could destroy your business if you are not properly insured.
Dairy Farm Insurance exists and has more intricacies than one might think. There are quite a few types of insurance that dairy farmers should consider purchasing, including:
- Livestock coverage insurance
- Commercial liability insurance
- Commercial property insurance
- Workers compensation
- Product liability
- Pollution liability
- Commercial vehicle liability
Depending on the exact business you run, your dairy farm should include a combination of these coverages.
4.Develop a Strong Brand
The only way the public will become aware of your new dairy farm is by way of branding and advertising. Let’s explore what each means for starting a dairy farm.
Increase Brand Awareness
Like starting any business, you will need to create a brand. Branding helps the public to identify your brand based on colors or a logo. You will advertise based on your chosen branding
The question becomes, do you develop a singular brand or merge with an existing one? An existing brand must first want to acquire new production before partnering with you. This may pose a problem as it is not easy to come by.
Developing your own brand will allow you to showcase who you are as a company. You can show your core values to the public and gain consumer’s trust through transparency.
Many small details come with developing a brand, such as:
- Brand logo
- Brand slogan or tagline
- Company business model
- Understanding the consumer
- Conducting market research
Creating an Advertisement
Once you have solid branding, you will need to market your new dairy farm to the public. People love to know where their food is coming from. This is your chance to relate to consumers while showing them that you stand behind quality dairy products.
Develop an advertising campaign that fits with your company’s core beliefs. Conduct market research to find out what consumers are looking for in their dairy farmers. The transparency will create a level of trust between you and the consumer, setting you up for success in dairy farming.
5. Franchise, Or Not
To franchise a business, a business owner (the franchisor) grants permission to operate and manage their services to others (the franchisee). The franchisor receives a start-up fee and ongoing royalty payments from the franchisee for use of their brand and name.
Franchising your business is one of the best ways to spread your name and grow your revenue quickly. Many studies report that franchise owners make more than 10 percent more annually than private owners. Making more revenue is the goal, but is franchising your dairy farm worth it?
Pros
- Greater access to funds
- Reduced risk
- Access to resources
- Continuous support from above
- Associated with big brands
- Defined work territory
Cons
- Limited creativity
- Ongoing franchisor fees
- Following others rules and business practices
- Loss of independence
- Selling restrictions
What is right for one business is not always beneficial for another. Evaluate your individual needs before committing to a franchisor.
Retail vs. Wholesale
Selling wholesale is a business-to-business model, in which your business is selling to another third party for distribution and retail, such as Costco or Walmart. Selling retail is a business-to-consumer model, meaning your product is being sold by you directly to the customer.
Utilizing wholesalers can be beneficial for streamlining large sales, but are not always the best option for small businesses. For example, buying in bulk means more of your product is selling, but unsold inventory can severely impact your cash flow.
Wholesalers offer lots of options for selling, including internet sales. Running an online store on your own can be a major hassle, so wholesalers offer that benefit. They also sell in major stores so your marketing bill is less costly.
Selling retail allows you to retain more of your profits. You can pick the prices of your goods. Selling wholesale may not cover the costs of a small business’s dairy products in total, especially if there is unsold inventory.
Advantages & Disadvantages of Selling Your Products To Wholesale Buyers
Pros
- Streamlined sales
- Less need for marketing
- Large amounts of product sold
- Provides sales support, including online sales
Cons
- Potential for unsold inventory
- Many hands in the process
- Less personal customer interaction
Advantages & Disadvantages of Selling Products To retail Customers
Pros
- You set the prices
- Don’t have to share profits
- More autonomy
Cons
- Higher marketing spending
- Less guaranteed sales
- More responsibility in growing brand
Very careful consideration of finances and company size will determine if selling retail or wholesale is right for your business.
6. Identify & Implement The Appropriate Marketing
Solid advertising, branding, and partnering are just the beginning of creating your dairy farm. Next, you will need a marketing method for gaining loyal customers. A large part of that means gaining consumer’s trust, showing that your product is pure and healthy for not only your body but the environment.
Total transparency is key. If you use high-quality feed for the cows, let people know! If your cows are beautiful, happy, and free-range, incorporate that into your marketing campaign. People want to see the best parts of dairy farming, so show them via social media.
Social media aside, decide on your marketing method. If you take your advertising to the internet, you can decide on a PPC (pay-per-click) search engine marketing campaign to drive your web traffic. TV ads, print ads in magazines, and billboard marketing are all effective ways of spreading your name and message.
Marketing tools can add up, so choose wisely. Your choices in marketing will depend on many things, such as your location. In rural areas, old-school marketing, such as billboards or radio ads, may be effective. To stay current, web marketing and TV ads can reach a greater audience.
Whether or not you have franchised your business is another factor. If you have teamed up with a larger company and are selling your products in their stores, you are already gaining an audience. Perhaps you are a direct-to-consumer dairy farm, in which you will need to spread your name further to gain a loyal clientele.
Market To Children
As mentioned before, children are the top demographic for milk consumption. Many brands in the past have created ad campaigns around children becoming healthier after drinking their milk. While this may be somewhat effective, the idea is stale.
Instead, incorporate children into your print and digital media. Host a tour of your dairy farm and invite local schools in the area. Be sure to market the event with photographers and sign release forms with any attending families. This shows the public you are committed to not only providing children with a great dairy product, but you are happy to educate them, too.
This idea establishes that children are the top consumer of the product. You are also setting yourself apart from the other brands by focusing on transparency, ethicality, and education.
7. Purchase The Right Equipment
If you are building your dairy farm from the ground up, buying machinery and building structures will be harder than you think. You may be buying an existing or abandoned dairy farm, in which you can renovate existing structures to save money.
What Equipment Do You Need to Start a Dairy Farm?
If you are starting from scratch, here is a list of equipment you will need to start a dairy farm:
- Feed bunks
- Portale hay feeders
- Portable weather-proof watering system
- Headgate
- Holding chute
- Working chute
- Crowding pen
- Holding pen
- Weighing scales
- Loading chute (if you plan on transporting animals)
- Open-sided housing structures
- Shading equipment, or tall trees for shade
Depending on the dairy products you plan on producing, you will need milk-processing equipment, such as:
- Milk tanks
- Pasteurizers
- Butter churners
- Cream separators
- Homogenizers
- Cheese pressing machines
What Software or Systems Do You Need to Start a Dairy Farm?
Your company and business model can help determine what software you will need for seamless operations. Plan on havings public or private tours of your facility? An appointment scheduling system may be beneficial to your company.
If you plan on having a direct-to-consumer retail store on your property, a credit card processing system is a must. This allows you to receive payment directly to the company without any third-party vendors. Additional licenses may be required to obtain before retailing your products.
To track all expenses, many dairy farmers rely on accounting software. Good accounting software can help track spending, assets, and even project the company’s future growth based on trends. Staying on top of all daily funds is a good start for a successful dairy farm.
How Much Does It Cost to Start a Dairy Farm?
The initial cost analysis for your new dairy farm will depend on the scale of the farm. Smaller farms with fewer cattle and products will be cheaper to run and maintain but will yield less revenue. Your business model will determine exactly how much the cost will be.
On the smallest scale, starting a dairy farm in the US can cost anywhere from $10,000 to $25,000. This is including a small number of cattle yielding a small amount of milk to sell. The larger the scale, the higher the number climbs.
Cost Breakdown
A certain amount of data is needed before determining the true cost of dairy farming, depending on factors such as:
- Farm staff
- Economic climate
- Weather climate
- Housing
- Owned farmland
- Product production
- Number of cattle
Here are the costs of each basic component for a successful dairy farm:
- Land – $5,000 and above
- Cattle – $1,500-$3,000 per animal
- Machinery – $200,000 (brand-new, as per the state of Illinois)
- Farmhands and employees – At least minimum wage, per hour, per person
Obtaining the Finances to Start a Dairy Farm
As we can see, expenses add up quickly when starting a dairy farm. Many entrepreneurs do not have that liquid cash handy, so what do they do to obtain financing?
Some financial institutions have farm financing in place to continue the growth of agriculture in the US. They are to encourage young people to get into farming who are passionate but lack experience.
Much like mortgage loans, farm loan companies exist as sole financiers for loaning the money for the purchase of a dairy farm. Payments are paid over many years with interest. The new dairy farmer must have the capital and good financial standing to obtain the loan.
The US Department of Agriculture also offers farm loan programs to farmers for a multitude of scenarios. Some of these types of loans include:
- Operation Loans – meant for purchasing livestock, food, and farm equipment
- Farm Ownership Loans – used for purchasing new farmland or expanding existing farmland
- Microloans – for small and beginning farmers who require smaller loans
- Youth Loans – gives 10-20-year-olds support if involved in farming programs in their state
- Native American Tribal Loans – assists Tribes in acquiring reservation farms and land for communal use
- Emergency Loans – offers assurance for farmers in hard times, such as during drought, floods, or other natural disasters
Instead of obtaining funds through the USDA, you can also secure finances through other private institutions.
What Is the Typical Profit?
Profits from the start of a dairy farm will, of course, depend on many factors. Average annual profits will also vary from state to state, as some states have higher dairy production than others.
On average, a non-franchised dairy farmer makes $64,000 as the highest annual income. Less productive states might average around $44,000 per year. Of course, no salary has one set income when dairy farming, so profits will fluctuate yearly.
You may also receive subsidies from the government for owning a farm in the US. Check with your local laws to find out what is right for your dairy farm. Higher costs of product will also yield higher profits, so selling in a place where the cost of living is higher will drive up your income.
Dairy farming is not for casual businessmen. To start a successful dairy farm, you must have passion for the process, a strong brand identity, proper licensing and insurance, equipment, software, and capital. There are many resources out there to assist you in your dream of starting a dairy farm. In the end, it is a lucrative business that provides a quality product to many people.
Conclusion: Is It Worth It to Start a Dairy Farm?
We have deep-dived into how to start a dairy farm. Knowing all the hard work, funds, and branding that goes into it, is starting a dairy farm worth it?
The short answer is yes. Of course, you have to passionately want to become a farmer for the hard work to pay off.
Projections expect dairy farming to climb about 2.5% annually, and being a part of that growth is exciting. While milk consumption is nationally down, the use of milk products is skyrocketing.
Many of your sales might be to other companies for the production of cheese, yogurt, and other milk products. You could also consider franchising to grow your dairy farm even further.
Ruben has been doing online marketing for the last 4 years. Prior to that, he spent 15 years managing different brick-and-mortar businesses, in the home improvement and logistics industries. Overall, he has 20 years of business experience under his belt. Recently, he added SEO, affiliate marketing, and link building to his business skills.