8 October 1999

Processing path is a tricky one – as they found…

Processing your own milk is

a complex business that

requires careful planning, as

John Burns discovers

WHEN dairy farmers Bill and Rachel Clarke of Greymare Farm, Lostwithiel, Cornwall, took their first tentative steps along the added value path seven years ago, it was in anticipation of tough times ahead rather than waiting for them to arrive. They werent expecting it to be easy, but soon found there was far more to it than meets the eye.

Bill Clarke started farming in 1977 and until 1992 his driving force was expansion to secure economies of scale. But, as the business grew, it became clear that a dangerously high proportion of their investment was in milk quota which would one day be worth nothing.

"I also believe that had we continued producing for the wholesale milk market, the economies of scale necessary to survive at close to world prices would only be achieved on units with four or five times our 270 cows," says Mr Clarke.

Rather than expand the herd further, the Clarkes decided to start adding value to the milk to build a business asset which would hold its value. They began on a very small scale, learning as they went.

"Rachel and I used to process the milk after we had put the kids to bed, and I delivered it next morning. Volumes were small and we were losing money on it."

At one point they gave notice to customers that they would be stopping production. But customers asked them to continue and helped by increasing their orders.

Mr Clarke adds value to about two-thirds of the milk and sells the rest to Milk Marque. He has invested some £300,000 in the venture to date, including much time and money to build markets and brands, as well as in stainless steel hardware which needs regular, and costly, maintenance. He is reluctant to reveal detailed costs and returns. "Return on capital is better than it is from dairy farming."

Milk processing and wholesaling is a complex business. A key factor in profitable milk processing is getting the balance of products right.

Clotted cream on its own is not profitable, and skimmed and semi-skimmed milks must be sold in the right volumes at the right prices. "Even the balance of different sizes of milk bottles is important in determining overall profit. Each has different labour content and retail demand," says Mr Clarke.

Most shops require a range of sizes and products, and that affects transport costs too. Other variables are seasonality of demand and credit required. The Clarkes sell three types of milk in three bottle sizes, four sorts of cream each in ten sizes, yoghurt in two sizes and butter in two sizes.

Pricing them requires all the mathematical skill Mr Clarke can muster. Two of his four A-levels are in mathematics and they have proved very useful, he says. "But there is still the big psychological hurdle of naming a price. Too high and the sale could be lost. Too low and the margin is lost."

Breaking into markets on price alone is ultimately expensive and counter-productive for the whole industry, says Mr Clarke. "It is best to build and promote a brand which guarantees quality – and something a bit different. That may be costly, but it does not force everyones prices down."

As well as the usual competition from national companies, the Clarkes have also faced new competition from two farmers co-ops. One has not been a problem, because it has effectively added to the market by producing and promoting branded products which sell at a premium. "But the other has gone into the market with a chainsaw, undercutting prices to unsustainable levels," says Mr Clarke.

He is currently putting a lot of effort into building a brand. "Initially we sold under our farm name label, but we have now taken over the more established Trewithen brand."

The Clarkes intend to build and promote it so it is even more widely recognised. Mr Clarke wants consumers to associate it with quality, flavour, good animal welfare and care for the environment, with retailers regarding it as consistent, in good demand and, critically, backed by good service.

GREYMARE FARM.

&#8226 200ha, including 64ha maize, 24ha wheat, 10ha triticale, 5ha barley, all fed to 270 cows.

&#8226 Staff: herd manager plus 3 others.

&#8226 Milk processing department: 11 full-time plus 4 or 5 part-time during summer peak season.

PROCESSING TIPS

&#8226 Ensure correct product balance.

&#8226 Careful pricing needed.

&#8226 Dont undercut market.

&#8226 Promote and establish brand.

&#8226 Good service essential.

GREYMARE FARM

&#8226 200ha, including 64ha maize, 24ha wheat, 10ha triticale, 5ha barley, all fed to 270 cows.

&#8226 Staff: herd manager plus 3 others.

&#8226 Milk processing department: 11 full-time plus 4 or 5 part-time during summer peak season.