CEFS - Dairy Farms Transitioning From Conventional Dairy MBA 541 | Fall 2015

CEFS' challenge

The Center for Environmental Farming Systems (CEFS), one of the nation’s most important centers for research and education in sustainable agriculture and community-based food systems, ran a USDA-funded project called North Carolina Growing Together (NCGT) from 2013 - 2018 that sought to “achieve greater food security by enhancing the economic viability of small and mid-scale farms and fishing operations and their communities.”

During those five years, NCGT worked with several small dairy farms, which had begun to lose ground to large-scale operations due to large market shifts in the US dairy industry.

These smaller dairy farms typically operated by selling unpasteurized milk to co-ops, where it was then processed for direct sale to consumers. However, every year it was becoming increasingly difficult to continue operating this way due to their small size.

While small dairy farms at the time typically operated by selling unpasteurized milk to co-ops, a new consumer interest in local and environmentally sustainable products provided them with an opportunity to begin producing their own bottled milk for direct sale to consumers.

To help ensure the long-term success of these farms, the NCGT program enlisted an MBA team through NC State’s Supply Chain Resource Cooperative (SCRC) to help farmers plan for a transition to producing bottled milk for consumer sales.

The assignment: Part 1

First, the students were asked to create a financial tool that would help dairy farmers organize their current costs and provide a five-year view of the potential costs and sales associated with the transition to on-farm bottled milk production.

The students' approach: Part 1

The team started by analyzing the cost structure of a typical small-scale dairy production. Next, they used a simple break-even analysis to determine how long it would take a farm to pay off the additional fixed costs it would face if it started producing on-farm bottled milk. To allow for the projection of variable costs, the team used the herd size as the primary indicator of future costs and revenues.

We did our best to make sure that the model reflected all possible cost and profit inputs and variables so that anyone who uses this model in the future will be able to make an informed decision about their business.” — Kaitlyn Pennington, 2017 Jenkins MBA alumna

Outcomes: Part 1

The team successfully created a financial tool that could assist dairy farmers in assessing the viability of transitioning to on-farm production of non-homogenized milk. In addition, the team created an instructional video and written instructions to assist farmers in operating the tool.

The tool the team produced is still available for farmers to use to better plan for their future.

The assignment: Part 2

With their new financial tool in hand, the team’s next objective was to provide a small family dairy farm in Yancey County, NC a financial outlook for making the transition to on-farm milk production.

The students' approach: Part 2

The team started by using data provided by the farm owners to determine the cost of purchasing and sustaining a cow over the course of one year. With the understanding that the family was open to increasing their herd size (which would be necessary to make the proposed transition), the team was then able to project their potential production and variable costs.

To determine the price the family could potentially charge for their product, the team completed a survey of potential buyers in a 25-mile radius of their home. (They identified the buyers using GIS and NAICS codes to create a list of grocery stores, convenience stores, and restaurants.)

The team then determined fixed costs associated with the on-farm production transition by gathering quotes from equipment sellers.

They used all this data with their new financial tool to create a five-year financial forecast for the family, running both a best-case and worst-case scenario with varying percentages of milk sales.

Outcomes: Part 2

The best-case scenario projected profits after four years, while the worst-case scenario did not show profitability within the projection period. However, the latter did show a trend of increasing revenues and the potential for profitability after five years.

Based on their findings, the team ultimately advised the family farm to move forward with the transition to on-farm production of non-homogenized milk if they wanted to make a long-term investment in their dairy operation.

"This team truly wanted to have an impact, to support this farm and others thinking about the transition from being simply a supplier of a raw material, to one that creates a finished product sold directly to the public. The team both answered specific questions that this farm family had, as well as creating a flexible spreadsheet tool that could be used by others contemplating the same transition. The students were professional yet also empathetic and caring." — Dr. Rebecca Dunning, Department of Horticultural Sciences & Center for Environmental Farming Systems, NCSU
“This was one of the first projects I advised, and it was so impactful. It was a great opportunity for a small business (a small family farm), and the team produced a model that CEFS could use with other small farmers. It won the SCRC’s Gallery Walk poster competition and was a great demonstration of the talent of our students.” — Betty Minton, SCRC Executive Advisor
Betty Minton, SCRC Executive Advisor
"My favorite part of the experience—I think everyone’s favorite part—was the trip we took to the mountains to spend the weekend with the family to learn about their farm first-hand. We milked the cows with them and learned about the challenges they were facing and about the successes they had experienced, which informed our financial profitability model and influenced our final conclusions and recommendations." — Kaitlyn Pennington, Jenkins MBA alumnus
Kaitlyn Pennington, Jenkins MBA alumna
“I think we definitely gave [the farm] a better understanding of what it would take to grow and develop their own brand. It was also great to see that our team’s hard work was acknowledged during the SCRC poster competition, where our project poster won first place. Overall, it was a great learning experience for everyone on the team and I think we all found the work very rewarding.” — Graham Givens, Jenkins MBA alumnus
Graham Givens, Jenkins MBA alumnus

Kaitlyn Pennington (foreground left) and Jazmine Davis (background; second from left) presenting their team’s project poster at the SCRC’s Gallery Walk showcase event in 2015.

The MBA student team at the SCRC’s Gallery Walk event in 2015, where their project won first place. (L-R: James Hollifield, Graham Givens, Betty Minton [faculty advisor], Kaitlyn Pennington, and Jazmine Davis)



The NC State team

Jazmine Davis

Graham Givens

James Hollifield

Kaitlyn Pennington

Betty Minton (faculty advisor)

The CEFS team

Dr. Rebecca Dunning, Department of Horticultural Sciences & Center for Environmental Farming Systems, NCSU