1)
Many dairy goat breeders reach a point in the development of their
herd when they contemplate commercial marketing of their milk. They may
have been utilizing most of the milk produced by their herd to raise
kids for replacements and for sale as breeding stock. Some milk may
have been sold to neighbors or used in raising calves or hogs. Due to
expansion of the herd and a good program of breeding and selection,
health, and nutrition, the herd milk yield now exceeds the demand of
neighbors and the few calves previously raised.
2)
The question arises as to the economics in the production of Grade
A goat milk and alternative methods of marketing goat milk. A specific
Grade A goat operation located in Central Arkansas will be used as an
illustration. The characteristic costs of production and income from
sales are unique to this operation. The objective is not to show how
much a producer can expect to earn from producing goat milk but to
delineate questions which need to be answered in order that a proper
economic analysis can be made.
3) The Petit Jean Goat Dairy
This goat dairy is located atop Petit Jean Mountain, 20 miles
southwest of Morrilton, Arkansas. The dairy was constructed as a
semi-confinement system with seasonal grazing of fertilized southern
grass-clover pastures supplemented by purchased alfalfa hay and
commercial mixed concentrates. Pen space was allotted for 125 milking
does plus bucks and replacements. Yearling does from five breeds -
Alpine, LaMancha, Nubian, Saanen, and Toggenburg were purchased in 1976
from several different herds in the Southwest US. First kiddings
occurred in January of 1977. The budget below is for the 1981
production year.
4)
The milk price received from the Yellville, Arkansas, processor in
1981 for 3.5butterfat milk was $14.65 per cwt (hundred pounds). An
additional $2.00/cwt winter milk bonus in December, January, and
February was paid also. However, milk production in those months was
only 50f the 1981 total herd output, making the ''adjusted'' milk
price $14.75/cwt for 1981 in average. Transportation of milk, 150 miles
from Petit Jean Mountain to Yellville, cost $2.50/cwt by an independent
bulk shipper. Collecting and shipping relatively small quantities of
milk over long distances results in high costs per unit transported.
The principal products sold from the Petit Jean Goat Dairy in 1981
were wholesale milk, cull adult does, breeding bucks and does and cull,
newborn kids, primarily bucks. No milk was sold raw, on-farm, as this
is prohibited by Arkansas law. Cull adults and kids were sold through a
local auction barn or on-farm.
5)
The principal products sold from the Petit Jean Goat Dairy in 1981
were wholesale milk, cull adult does, breeding bucks and does and cull,
newborn kids, primarily bucks. No milk was sold raw, on-farm, as this
is prohibited by Arkansas law. Cull adults and kids were sold through a
local auction barn or on-farm.
6)
The Petit Jean Goat Dairy was designed and licensed as a Grade A
goat milk production facility, but in 1981 all milk was sold to an
evaporating plant at Yellville, Arkansas. The Yellville market only
requires a ''manufacturing grade'' milk license (Grade C). However,
since Grade A facilities had been constructed, little or no additional
efforts were required beyond normal repair and maintenance.
7) 1981 Cost Factors
In Table 1 are prices paid for inputs and received for products in
1981. Several points need to be emphasized. The cost of purchased
alfalfa hay in many parts of the US has risen dramatically as a result
of increased fuel costs. Central Arkansas is ''alfalfa-deficient'' and
good quality baled alfalfa must be transported several hundred miles
from Kansas, Oklahoma, or Missouri. Competition from a growing dairy
cow and horse population at times makes alfalfa difficult to procure.
Several alternatives to alfalfa have been tried by Central Arkansas
producers, including hay made from lespedeza, sudan-sorghum hybrids and
well fertilized Bermuda grass. Most have found, however, that dry
matter consumption and milk yield are highest when alfalfa is fed.
Dairy goats are known for wasting hay by picking leaves, rejecting
stems and pulling hay from feeders. Alfalfa pellets offer an excellent
low-waste alternative to baled alfalfa. The cost of pellets dry matter
are high relative to hay and the cost of investment in storage
facilities can reduce the advantage from feeding pellets. Drying and
pelleting also can reduce the nutritional quality of pellets,
especially digestible protein.
8)
An analysis of the advantage of alfalfa pellets compared to alfalfa
hay should include amount of hay lost due to wastage (some waste can be
recovered by feeding to other livestock), increased cost of dry matter
for alfalfa pellets, annual cost of storage facilities (interest on
investment and annual repairs) and differences in nutritional quality
which must be compensated for by purchased concentrates.
9)
Early in 1977 it was realized at the Petit Jean Goat Dairy that the
labor of one ''owner-operator'', even when supplemented with additional
labor from the family, was not adequate to handle all the chores of a
125-doe operation. Part of the problem was in the nature of the dairy
goat production cycle with peak demands for labor in the spring
kidding and fall breeding season. Seasonal labor demand overlayed the
constant non-seasonal requirement of labor for milking, feeding, daily
cleaning and maintenance. Coupled with the need for responsible,
motivated, and qualified help in such tasks as kid raising and milking,
the labor requirement is an input which deserves close attention in the
design and planning of a commercial Grade A dairy goat operation.
10) Table 1. Prices Paid and Received for Inputs and Products (Petit Jean Goat Dairy, Arkansas, 1981)
|
Paid For:
|
Unit
|
Price
|
|
Alfalfa Hay
|
Ton
|
$105.00
|
|
Hourly labor, including fringe benefits
|
Hour
|
$5.30
|
|
Milk Hauling
|
cwt
|
$2.50
|
|
|
|
Received for item:
|
Unit
|
Price
|
|
Milk, 3.5 butterfat
|
cwt
|
$14.75
|
|
Buck kids, 3 days old
|
head
|
$5.00
|
|
Doe kids, 3 days old
|
head
|
$15.00
|
|
Cull adult does and bucks
|
head
|
$20.00
|
|
Breeding bucks, 7 months old
|
head
|
$200.00
|
|
Breeding does, 7 months old
|
head
|
$150.00
|
11) 1981 Operating Budget
In Table 2 are the 1981 operating costs. ''Cash'' costs are actual
outflows of money paid in the course of the operation of the dairy.
''Imputed'' costs, in this case interest on equity capital and
owner-operator salary, are costs charged against the operation but
represent no actual cash outflow. An imputed cost can be defined as
''opportunity cost''; that income which might be received if capital
or labor were used in its most productive alternative enterprise. The
''owner-operator'' borrowed no money to buy land, stock, and construct
facilities. All $86,000 of the capital cost of land, buildings, fences,
stock, and equipment was available without bank financing. Therefore,
no yearly cash outlay for interest on borrowed capital was necessary.
The opportunity cost of the equity capital an owner-operator has in his
facility is that interest he could earn if his assets were liquidated
and invested in an alternative enterprise. In this case, there is a 10
imputed cost which is the approximate interest that could be earned in
1981 in a short-term bond or savings account.
12)
An owner-operator's labor also has an opportunity cost. A plumber
or electrician who operates a Grade A dairy goat farm, foregoes the
salary he could earn in his trade. Along with the opportunity cost of
equity capital, an owner-operator ''salary'' is often over-looked in
evaluating true costs of operating a dairy. ''Pride of ownership'', the
pleasure received from owning and milking a productive herd of dairy
goats, may compensate for some of the imputed costs but the reality of
income foregone cannot long be ignored.
13)
Imputed, or non-cash costs, included depreciation of equipment,
interest on equity capital (all $86,000 of the capital costs of
constructing and equipping the dairy is equity as no money was
borrowed), an ''owner-operator'' salary and the milk used to feed
replacements ($12.25/cwt).
14)
Concentrate and hay costs made up 470f the total cash costs. A
mixture of alfalfa and grass hay was purchased with alfalfa used
primarily for milking does and replacements. Young and early lactation
does, and dry does in late gestation, received the best feeds. Bucks,
unbred, and late lactation does were fed good quality grass hay,
trace-mineralized salt, and a minimal supplement of low cost grain.
Attention paid to the appropriate distribution of protein and energy in
feeding the herd will result in an optimum return of milk per dollar
of feed cost.
15)
One full-time laborer ws employed at the Petit Jean Goat Dairy in
1981 to supplement the labor of the ''owner-operator'' who was actually
a paid manager. During the peak labor seasons of kidding (late
winter-early spring) and breeding (fall), more than 80 hours per week,
or 2.0 man equivalents, were required. Hired labor supplied only 40
hours of any week, with the ''owner-operator'' expected to provide the
remainder. This is a common situation on farms where total hours above
40 per week are paid at time-and-a-half or more and where activities at
kidding and breeding are critical to the economic health of the
operation.
16)
Five replacement bucks were purchased in 1979 at an average cost of
$350.00. An alternative would have been to purchase frozen semen from
proven sires to produce replacement bucks out of the best does in the
herd. The choice of whether to buy bucks or use frozen semen to upgrade
the genetic potential of a herd requires careful analysis. There is a
need in the US for data recording on dairy goats to identify superior
sires with an adequate accuracy. Use of frozen semen from a buck with
records on a few daughters in only a small number of herds is risky.
However, if semen from ''proven'' sires is available and replacement
bucks were selected from superior does, more rapid genetic progress
would be possible at a lower cost than if replacement stock were
purchased. Using AI would allow fewer bucks to be maintained. In the
case of the Petit Jean Goat Dairy, only one buck per breed would be
needed instead of two. The success with AI in dairy goats will be
important in the future development of the dairy goat industry.
17) Break Even Analysis
Cash and ''imputed'' costs in 1981 totaled $68,488.31 or $547.90
per milking doe. For the operation to be economically sound, each doe
should generate at least $547.90 in income from sale of milk
supplemented by the sale of cull adults and kids. The budget in Table 2
does not include costs for raising and selling weaned kids of breeding
quality. In the ''short-run'', for example, a period of one or two
years, if each doe had covered cash costs of $352.01 from the sale of
her milk, the operator probably would continue to produce goat milk.
However, over the ''long-run'', if imputed costs are not covered, the
operation is not economically healthy. A producer realizes this when a
new tractor must be purchased or a job is offered at a salary which the
cash profits from the dairy operation cannot match.
18)
The price received for milk, net of hauling in 1981, was
$12.25/cwt. The cash costs of production per milking doe of $352.01 per
year call for a breakeven level of milk production of 2,874 lb per
doe. To cover cash plus imputed costs of $547.90, the per doe level of
production ought to be 4,473 lb. This level of production greatly
exceeds yearly averages recorded for the top producers, Alpine or
Saanen dairy goats on Dairy Herd Improvement production tests between
1968 and 1978.
19)
At a given level of milk production, what milk price must be
received to ''break-even'' on the operation? That is, what milk price
allows the producer to cover all cash costs or cash costs plus imputed
costs? With 1981 cash costs of production of $352.01 per doe, the
necessary ''break-even'' milk prices for production levels of 1,500,
2,000, 2,500, and 3,000 lbs per doe are $23.47, $17.60, $14.08, and
$11.73 per cwt, respectively. At these prices per cwt and the
respective levels of production, cash costs of $352.01 per doe would be
paid for by the sale of milk. Some distortion in this analysis might
be expected with higher costs for such inputs as feed and veterinary
expenses at the higher average levels of production but the analytical
procedure remains the same. Given the same annual levels of production
per doe (1,500, 2,000, 2,500, and 3,000 lbs), the ''breakeven'' prices
per cwt milk, f.o.b. farm, necessary to cover cash plus imputed costs
($547.90) are $36.53, $27.40, $21.92, and $18.26, respectively. Unless
the price received for milk sold is adequate to cover cash plus imputed
costs of production, a producer would receive a better return on his
labor and equity capital in an alternative enterprise.
20) Breeding Stock Enterprise
The analysis above assumes that only replacement doe kids were
raised in 1981 sufficient to allow removal of 30 adult does from the
milking herd's culls. All buck kids and the remaining doe kids were
sold at 3 days of age at $5.00 and $15.00 per head, respectively. As
the genetic potential of a dairy goat herd increases, surplus kids sold
as breeding stock become a significant source of income to supplement
that received from sale of milk. As an example, 50 does and 5 bucks
might be raised to seven months of age and sold as breeding stock at
$200 and $150 per head, respectively, or a total income of $8,500. The
contribution of the breeding stock enterprise is evaluated by
considering the cost of producing the seven-month old kids. In Table 3
is an analysis of cash costs for a breeding stock enterprise in 1981.
Total cash costs to raise 55 kids to 7 months of age in 1981 would
have been $4,878.24. Net income on the sale of 55 kids would have been
$3,621.76. Sale of breeding stock would reduce the breakeven level of
production necessary to cover cash costs from 2,874 lb per doe to 2,637
lb. To cover cash plus imputed costs, the reduction would be from 4,473
lb to 4,236 lb, assuming a milk income of $12.25/cwt f.o.b. farm. It
is important to note that all costs in Table 3 are ''cash'' costs. If
extra investment in land, building, and fencing is required, or
additional ''owner-operator'' labor is needed, imputed costs for the
breeding stock enterprise would need to be evaluated.
21) Other Alternative Sources of Income
Marketing wholesale directly to a milk plant is not the only way to
gain income from the milk produced by a dairy goat herd. Alternatives
include direct marketing of milk in raw or pasteurized form as fluid
or processed products, and growing calves or pigs on high milk diets.
Each marketing method has its distinct advantages and disadvantages
which a producer needs to accurately evaluate before a decision is
made. Direct sale of milk is often an attractive alternative to
wholesaling goat milk to a processing plant, especially in those
states where raw milk sales are allowed. However, there is also beyond
the capital investment required for processing, packaging, and delivery
equipment, the labor and management required for direct marketing
enterprises. Management time must be adequately compensated at its
value in alternative activities or the enterprise is not producing an
adequate return. Many producers who investigate direct marketing of
their herd's milk find that the time necessary to process and
distribute their milk would give a better return if applied to the milk
production enterprise in expanding to more goats or better managing the
herd already owned.
22)
A large percentage of the goat milk produced in the US is fed to
wethers, calves and pigs. Calves are usually dairy breed calves
(Holstein most common), bulls and heifers, purchased at or near birth
at auction or on contract from local cow dairymen. These are grown to a
weight of 300 to 400 lb or greater on goat milk and sold as feeder
steers, replacement heifers or heavy veal. Pigs are purchased as feeder
pigs and grown to slaughter weight of 200 to 220 lb on a combination of
goat milk and solid feed. The returns earned from such enterprises are
dependent upon market value of the ''finished'' product, rate of
growth, efficiency of conversion of goat milk to bodyweight gain,
overhead costs (buildings, land, equipment, etc.) and labor and
management requirements. Losses from mortality and morbidity can mean
the difference between profit and loss in calf and swine feeding
activities; veterinary and medicine costs are often the result of poor
management. Calves maintained on high milk diets for long periods of
time (beyond normal weaning) are susceptible to digestive upsets
resulting in marginal bodyweight gains. Where specialty markets for
wethers for goat barbecues, veal calves, or replacement heifers exist,
and where market opportunities for goat milk are limited, using milk to
raise livestock can be an economically viable enterprise.
23) Conclusion
The production costs for 1981 for the Petit Jean Goat Dairy in
Morrilton, Arkansas, are presented to illustrate the procedure to
evaluate the potential for profitability from the production and
marketing of goat milk. Values for various inputs and amounts used to
produce goat milk vary from region to region and between herds within a
region. The budgeting procedure, however, remains the same: an
accurate accounting of all inputs, both cash and imputed, should be
made to determine the cost of producing a unit of goat milk. Whatever
the method of marketing of goat milk, it is important that the
evaluation include return to equity capital and owner-operator labor.
Producing high levels of dairy goat milk from a healthy herd and an
efficient dairy is an economic managerial and promotional challenge.
Without a realistic, continuous economic evaluation, an enjoyable hobby
or part-time goat dairy could become a frustrating and expensive
enterprise.
