Expansion into cheese doubles dairy’s turnover
Diversifying could be an option for dairy producers looking to safeguard their future, Dairy Update meets one producer reaping the benefits from moving into cheese production
Since taking the decision to move into cheese production in 2005, Michael and Mary Davenport have overseen the steady expansion of their new cheese enterprise to a point where it accounts for 50% of turnover from 25% of milk produced.
In that time they have managed the controlled growth of the cheese business and an evolution of the dairy herd to better suit the demands of cheese production. They openly admit without the diversification they would not be in dairy farming today.
The Davenports are tenants on the 74ha Cote Hill Farm at Osgodby, Market Rasen, Lincolnshire. In the late 1990s a combination of declining milk prices and the economics of employing additional staff to cover while Mr Davenport took time off for an operation led to a decision to sell the existing herd.
Management changes
However, in 2002 following discussions with their Promar consultant, a plan was developed to return to dairying, involving a block calved system with a combination of TMR feeding and grazing. All field work would be carried out by contractors, allowing Mr Davenport to manage the herd with some relief staff.
The new herd comprised 70 Holstein heifers and 10 cows and was soon averaging 8,300 litres, with milk sold to Dairy Farmers of Britain.
But by 2005 Mr Davenport was starting to question the economics of dairying, particularly when 15% of income was tied up in the Single Farm Payment. He saw it as high risk to be so reliant on something that could be changed or removed at the whim of politicians.
“We decided we had to make a fundamental decision about the business and took further Promar advice to evaluate the options,” he explains. “We concluded expansion opportunities would be limited due to the farm size and we doubted the bank would finance an expansion to 150 cows on a tenanted farm. The availability of labour was also likely to be a major problem, as we are not in the centre of the dairying parts of the country.
“We could have gone out of milk but did not want to, so the other option was to add value to the milk through diversification and we decided to investigate this option in more detail.”
Adding value
The question then became how to add the most sustainable value. They considered ice cream production, but felt it was too seasonal and would not use a high enough proportion of milk produced, although it was a good added-value product.
Cheese production, however, had several attractions. There was a resurgence in interest in local provenance and the farmers’ market movement was expanding. At that time Lincolnshire Poacher cheese was well established and was the only Lincolnshire-produced cheese. Importantly, the Davenports saw an opportunity.
“We identified a niche to produce soft cheeses, particularly a blue cheese. With a purchased cheese vat and two rented fridges, we made our first batch of 10kg of cheese using 100 litres of milk in January 2005.
“One of the big benefits of soft cheeses is that they are ready in one month, which is good for cash flow. We used the initial batches to do market research in the local area. This was an essential stage as it gave us the confidence to invest in the business.
“As part of the research we took samples to a cheese wholesaler in Market Rasen, who agreed to take cheese from us and now sells on our behalf into local shops and to delis across the East of England.”
Investment
Following the production of detailed budgets by their Promar consultant, an application was made for a rural enterprise scheme (RES) grant to part-fund the £29,000 conversion of existing buildings into a cheese room, a blue cheese maturation room and a cold store.
With enlarged facilities and a route to market arranged, it was possible to go into full-scale production. Mrs Davenport left her secure teaching post and became a full-time cheese maker.
The first full batch was made in October 2005 ready for the Christmas market, and in the first full year three tonnes of cheese were made. In the second year this had risen to six tonnes, with nine tonnes produced in year three.
Mrs Davenport explains that production was varied to accommodate a range of cheeses and cheese sizes. “In addition to making the blue cheese, we introduced Cote Hill Yellowbelly, a soft cheese in yellow wax. We also produced a 350g blue cheese in addition to the 1kg cutting cheeses. We further widened our marketing approach taking on more wholesalers, giving us access to the London market as well as more farmers’ markets.”
During 2008/09 it became clear that facilities were holding the business back and there was concerns they were too dependent on Mrs Davenport as the sole cheese maker.
Promar senior consultant Charles Skelton helped construct the plan to expand the unit again. Using data from Promar Farm Business Accounts (FBA) it was clear that at nine tonnes a year, the cheese unit was achieving a gross margin equivalent to 40% of turnover.
The budgets showed that even after employing an additional member of the cheese-making team costed direct to the enterprise, the unit would still achieve a 40% gross margin but on an increased turnover. At the same time, Single Farm Payment would account for less than 4% of turnover.
A total investment of £110,000 was made with a 50% grant from the Rural Development Programme for England to increase production capacity to 18 tonnes a year. As part of the expansion, Joe, one of their four sons, has trained as a cheese maker and come into the business.
“We are currently producing 17 tonnes annually,” explains Mrs Davenport. “Having a range of products is essential and we still vary the product mix and cheese size during the year to meet seasonal demand and have added Cote Hill Red and Cote Hill Reserve to the range. Our capacity is 1,000 litres a day and we make cheese five days a week. We hit maximum output in peak weeks such as the run-up to Christmas. The cheese enterprise now contributes 50% of turnover and uses 25% of the milk, the balance being sold to Dairy Crest.
“We have won gold medals with Cote Hill Blue at the British Cheese Awards, Nantwich International Cheese Show and The Great Yorkshire Show.”
Performance
Mr Davenport believes it is essential to keep on top of performance measures. “With a new enterprise there is lots going on, new tasks and new skills to be learned, including marketing and sales. So it could be easy to lose track of the financial performance, which would be a disaster.
“We have used Promar Farm Business Accounts since July 2007 and we get monthly statements of performance for both the cows and the cheese. Our recorder Helen Battye works closely with Charles Skelton to ensure we know what is going on and how everything is performing.”
In addition to developing the cheese enterprise, Mr Davenport has modified the herd to produce the best milk possible and increase the efficiency of the whole operation. He now runs a herd of Friesians and Red Polls, with the emphasis on breeding for milk quality.
Management is focused on maximising production from forage and has been helped by the installation of out-of-parlour feeders to help target feeding and manage cow condition.
“In spite of a reduction in yield, we are producing more milk from forage and the better-quality milk required for cheese production. Some forage area is under HLS management rules, which has benefited the business. It generates an income stream and as we have over 800 visitors a year it helps promote our ethos of local food provenance.”
Michael is convinced that diversification has allowed them to remain in dairy farming. “Diversification isn’t for everyone, but it can offer a way to add value and expand the business. But it needs very careful planning, painstaking detail in monitoring all aspects and a good dose of realism.
“However it gives us a real buzz knowing that we have made a difference to the way we use our milk and that we are in control of our business. Without it we would not be here today and it has meant the next generation has a future in the business too,” he concludes.
Cote Hill Farm
| Before move into cheese | After move into cheese | |
|---|---|---|
| Herd size | 80 Holsteins | 70 Friesians/Red Polls |
| Yield a cow (litres) | 8,300 | 7,350 |
| Yield from forage a cow (litres) | 0 | 3,750 |
| Butterfat (%) | 4.01 | 4.50 |
| Protein (%) | 3.27 | 3.35 |
| % of milk sold to milk buyer (%) | 100 | 75 |
| % of turnover from cheese (%) | 0 | 51 |
Keys to successful diversification
- Plan all aspects very carefully
- Research the market – where and what is the opportunity?
- Diversify into something you are interested in
- Invest in learning the skills required
- Don’t over-commit – build the business at a sensible rate
- Monitor technical and financial performance ruthlessly
- Don’t expect it to be an easy option