@article{Nicholson:121583,
      recid = {121583},
      author = {Nicholson, Charles F. and Stephenson, Mark W.},
      title = {Financial Performance and Other Characteristics of On-Farm  Dairy Processing Enterprises in New York, Vermont and  Wisconsin},
      address = {2006-11},
      number = {640-2016-43072},
      series = {Research Bulletin},
      pages = {78},
      year = {2006},
      abstract = {In the last decade or two there has been a resurgence of  interest in value-added agriculture,
driven by consumer  characteristics and the desire of farmers to capture a  larger share of the
consumer dollar. Federal, state and  local governments have funded various efforts to  support
value-added agriculture, often implicitly assuming  that the enterprises would be profitable and
that the  transition from commodity producer to  producer-processor-marketer-distributor would
be relatively  easy. Some analysts (e.g., Streeter and Bills, 2003) have  questioned both of these
assumptions, noting that available  aggregate data do not allow assessment of the  financial
performance of value-added enterprises. In the  major milk-producing states, on-farm processing
of milk is  seen as a way of adding value to milk, but previous  research on value-added dairy
consists largely of ex ante  budgeting or qualitative case studies. Our study collected  detailed
financial information from 27 value-added dairy  enterprises with cows, goats or sheep in three
states.  These businesses processed and marketed cheese, fluid milk  products and yogurt; 17 had
begun processing during the  previous three years. The financial information was used to  develop
income statements and balance sheets for both the  milk production and the dairy processing and
marketing  enterprises. Our results suggest that value-added dairy is  not a panacea: despite much
higher revenues per unit milk  produced or processed, mean net income for the  processing
enterprise and for the combined milk production  and processing business were modest at best
and often  negative. More than half of the on-farm processors had  negative net incomes from
processing, and seven processing  enterprises had negative net worth. On average, returns  per
cwt milk processed were $90 per cwt and $209 per cwt  (for cow and goat/sheep milk producers,
respectively) lower  than the full economic costs of production and processing  that accounted for
the value of owner/operator labor and  the equity cost of capital invested. Total  labor
requirements for production, processing and marketing  were roughly double those for milk
production alone.  Caution should be exercised about generalizing the results  of this study
because the number of businesses analyzed is  small, many of the businesses are relatively new
and data  was collected for only one year. Future research efforts  should seek to increase the
sample size, collect panel data  and explore in greater detail the reasons for observed  financial
performance. Efforts by governments can require  better documentation of the financial
performance of  value-added enterprises, provide improved support for ex  ante analysis of
business opportunities by potential  value-added processors and assist with identification  of
production and management strategies that are likely to  be more successful.},
      url = {http://ageconsearch.umn.edu/record/121583},
      doi = {https://doi.org/10.22004/ag.econ.121583},
}