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 3.5 butterfat 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.
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: Item Unit Price
Alfalfa hay ton $105.00
Hourly labor, incl. fringe benefits hr 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, fore goes 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 can't 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 2,874lb per doe to 2,637lb. To cover cash plus imputed costs, the reduction would be from 4,473lb to 4,236lb, 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.
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.