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Expanding Dairy Enterprises in ND GrowthFactors

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					          Expanding Dairy Enterprises in North Dakota:
                  Growth Factors Necessary for Economic Development

Culture, equity capital, and available resources are the building blocks to the
dairy industry’s modernization and expansion.
     It’s no secret that the need to create a sustainable dairy business and improve quality of life
is prompting many producers to modernize and/or expand. But why are cow numbers and dairy
farms increasing in some regions of the country while decreasing in others? Three factors in
particular – culture, equity capital, and available resources, including land and labor trends –
affect industry growth.

Culture
    To some extent, Midwesterners’ modesty has limited dairy expansion. Many producers
worry about growing too large or too profitable, which may be socially unacceptable in their
communities.
    “Too large” is often defined in the Midwest as “having more cows than me.” The average
herd size is about 70 cows in Wisconsin, Iowa, and Minnesota. Operators milking 100 cows in
those states could be considered large, even though California’s average herd size is almost 10
times larger than the Midwest.
     While the California model might not work in the Midwest, incremental expansion will help
many operations remain viable. Higher incomes, better lifestyles, and decreased manual labor
are a few of the benefits cited by producers who have undergone expansion or modernization.
Capital is needed to encourage more dairy producers to do the same in order to maintain – if not
increase – Midwest cow numbers and milk production.

Equity Capital
    In areas where equity capital is needed to fuel expansion, new partnerships are forming.
Some milk processors are developing modernization promotion programs, and some milk
equipment companies are helping producers expand in particular geographic areas. In other
cases, builders are taking an ownership position in the facility that they construct.
     Although many lenders remain committed to providing the required debt capital, a shortage
of equity capital is one of the biggest inhibitors for Midwestern dairy expansion and
modernization. The dairy industry must continue to attract capital, both internally and
externally. Collaborative efforts between producer groups and government agencies are needed
to provide increased expansion and/or modernization incentives.

Resources
     Labor and land availability also greatly impact dairy industry growth. With open spaces,
California was the first state to encourage – or at least not discourage – dairy operations to locate
and expand within its borders. Often those who are the first to enter a market have an advantage,
and the same is true for California dairy producers. Producers who were early adopters have
reinvested their profits, following growth models for the past 30 years.
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    Many Midwest dairy producers are reinvesting profits into their operations as well.
    Expanding operations can create additional needs for labor sources. The need for reliable
laborers is a nationwide issue, and many dairy owners are seeking and sharing creative solutions
and resources. Sometimes one “partner” raises replacement heifers while another concentrates
on milking cows. One neighbor might purchase forage harvesting equipment while the other
purchases a combine. Such arrangements help reduce the capital outlay for each dairy operation
and make expansion more affordable.

Call for Action
     Very few producers can afford to make the leap from 75 to 3,500 cows, but stepwise
expansion is possible in a positive business climate and with available resources. Business and
political leaders need to recognize the dairy industry’s importance to local economies and help
encourage producer viability. The Midwest needs objective, balanced regulations and permitting
policies that consider producers’ needs, as well as rural residents.
    The Midwest dairy industry has an opportunity to prevent total concentration from
happening despite the trend toward Western milk production expansion. There is still a strong
dairy presence in the Midwest, and it is something that should be preserved and strengthened.
We run the risk of losing the economic benefits if we put up barriers to modernization and
expansion.


    Editor
    J.W. Schroeder, Extension Dairy Specialist, NDSU, Fargo, ND

    Reprinted with permission from Midwest Dairy Business, May 2002, Vol. 7, No. 5, page 50, Jim Borlaug,
    publisher and Paul DeBriyn, president, AgStar Financial Services (7/26/02).
    About the Authors:
    Paul DeBriyn has served as president and CEO of AgStar Financial Services, ACA since its formation in
    1998. FCS of Northwest Wisconsin recently merged with AgStar. He may be contacted at 507-345-5639 or
    pdebriy@agstar.com.
    Tim McNamara serves as vice president – Dairy Business Group for AgStar Financial Services, ACA.
    McNamara works with AgStar dairy specialists and producers in eight states including Indiana, Minnesota,
    Missouri, Montana, North Dakota, Oregon, South Dakota, and Wisconsin. He may be contacted at 507-645-
    1732 or tmsnama@agstar.com.


Reference: AS-DE5        Last updated: August 14, 2002
                                                                File: Expanding Dairy Enterprises in ND GrowthFactors.doc




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