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«David Alvis A 2008 Oxford Farming Conference / Nuffield Farming Scholarship Trust award Thanks and acknowledgements I would first and foremost like ...»

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External Capital and the Drivers of Entrepreneurial

Success in Large scale Dairying

Experiences from the United States and their potential application to the UK

David Alvis

A 2008 Oxford Farming Conference / Nuffield Farming Scholarship Trust award

Thanks and acknowledgements

I would first and foremost like to thank my sponsors, the Oxford Farming Conference and the

Nuffield Farming Scholarship Trust for giving me the opportunity to undertake this study. It has been

an immensely rewarding experience, both personally and professionally for which I am extremely grateful I would particularly like to thank John Stones, NFST director, for all his hard work throughout the study period and for his support and patience through what has been an interesting and challenging last 12 months for me To all the 2008 Nuffield Scholars from the UK, Ireland, Australia, New Zealand and Canada for making the last two years such a rewarding and thought provoking experience. Katie & I have particularly enjoyed hosting numerous overseas scholars over the past two years.

To Paul Fox, Phil Davies, Mark Taylor, John Alvis, Rob Drysdale, John Mogg & Robert Smith for their advice and support throughout my study and with the dairy project Craig Watson, for inviting me to participate in the Alta Advantage tour to California Rob Heap for organising a fascinating tour to New York State Colin Reece, Michael Heinrich & Craig Martins of GEA Westfalia Surge and Andrew Wedel of McClanahan Corporation for their hospitality both in Germany and the United States.

Criag Bellamy of the Global Dairy Platform, Jay Waldvogel & David Darr of Dairy Farmers of America Steve Larson of Hoards Dairyman and Professor Mike Cook and his team at the University of Missouri for all their valuable insights into the US and global dairy industry.

Tom Gaughan & colleagues at Downes O’Neill for a fascinating day in Chicago learning about dairy derivatives, synthetic hedging strategies and an unforgettable tour of the Chicago Mercantile Exchange.

David & Joan Wieckert for their generous hospitality during my week in Madison Dan & Mary Monson, The Crave Brothers, Dr Kenn Buelow and family, Jim Ostrom, Gary Corbett, Mark Stoermann, Steve Bos, Alex & Willy van Bakel, Jan Jannsen, Tons Schoonwater, Wouter van Deurzen, Dr Leon Weaver, Dr Gordie Jones and many others for allowing me to visit their farms, for sharing their experience and often sensitive information about their businesses and for answering my awkward questions.

And last but by no means least, my family and friends for all their support throughout my study and above all my wife Katie, who never once complained about my being away from home and who has been a constant and selfless source of support through all the challenges of the last two years. It would not have been possible without you.

Introduction My name is David Alvis and I want to be a Dairy farmer.

I live in Buckden, Cambridgeshire with my wife Katie and two young sons Dickie & Harry, from where I run my own consultancy business, which I started since my Nuffield study. I am currently contracted to the Technology Strategy Board, (www.innovateuk.org) as lead specialist in their Sustainable Agriculture and Food Innovation Platform, I grew up on a mixed dairy and arable farm in North Somerset, and studied Agriculture at Wye College, University of London. After graduating in 1990, I worked for three years as assistant farm manager on a large potato growing and packing business based in Essex, followed by 8 years with Anglian Produce, a grower owned potato marketing co-operative based in Norfolk and subsequently as a regional general manager for Greenvale AP, the product of the merger between Anglian Produce and Greenvale Produce to form one of the largest integrated potato growing and pre-packing businesses in the UK.

In 2001 I took a year out to study for an MBA at Cranfield School of Management, after which I worked as commercial director for Timac UK, part of the Roullier Group. It was during this time that my interest in dairy farming was re-ignited.

It was becoming apparent to me at this time that with the long term decline in UK milk production; a potential opportunity was opening up within the sector. Following ten years of low milk prices and underinvestment in the industry, the decline in national output has made milk quota, previously a major barrier to entry to the industry, effectively worthless, fundamentally changing the economics of milk production.

–  –  –

By comparison, the US dairy industry has for the last fifteen years seen a similar rate of decline in producer numbers to the UK, with numbers declining by 40% between 1997 and

2007. The net effect on production however has been very different.

Over the same period (97-07) total milk output in the US grew by 18% compared to a 10% fall in the UK. This has been achieved in part by a rapid concentration of production into the hands of a few, very large producers.

By 2008 the USDA estimated that 50% of US milk was being produced by little more than 3% of the nation’s dairies, on units of over 500 cows. In reality that figure is probably even more extreme as many of these ‘super dairies’ were part of multi site businesses, which were expanding rapidly.

The rise of these super producers intrigued me. Who were they? Who was financing them?

How were these businesses structured and managed and most importantly how much of their experience could be successfully transferred to the UK?

When I applied to The Nuffield Farming Scholarship Trust I had started working on a plan in partnership with a syndicate of arable farmers in south Cambridgeshire to build a large scale dairy unit, of over 1,500 cows, that would integrate with their existing arable businesses.

The inspiration for the idea came from the United States, and I felt that the drivers behind the rapid growth of large scale dairying in the US would make the basis of an interesting study with potentially valuable lessons for the UK dairy industry Agriculture in Europe is rapidly changing, with reducing levels of support forcing a wave of rationalisation particularly in the arable sector that is continually driving up the minimum economic size for commercial farms. It was clear to me that in the future, successful new entrants to agriculture would need to be able to manage not only the technical and economic aspects of food production but also become more adept at sourcing and managing external sources of capital to fund their establishment and growth.

The combination of this potential paradigm shift for agriculture and how it might be applied to the UK dairy sector has shaped my study and subsequently my life.

Study itinerary During 2008 I visited the United States three times, Firstly for 10 days in March to California, visiting a number of large scale producers in the spiritual home of the large scale dairying, including a fascinating tour and conference organised by Alta Genetics for 200 of their largest global farmer customers. The second was to New York state and Ontario in April with a small group of UK dairy farmers and fellow 2008 Nuffield scholar Graham Lochhead, on a tour organised by Rob Heap of Bauer UK.

The third and most significant block of travelling was a solo five week trip of the mid West in September and October, visiting a number of large dairy businesses, in Wisconsin, Indiana, Ohio & Michigan as well as spending a week at the World dairy Expo at Madison where I stayed with Dave Wieckert, a long time friend of Nuffield an professor emeritus of dairy science at the University of Wisconsin, Madison.

That trip also included time in Chicago, where I visited the HQ of the Global Dairy Platform and dairy commodity brokers Downes O’Neill, who gave me a fascinating tour of the trading floor of the Chicago Mercantile Exchange. I also travelled to Missouri to meet Professor Mike Cook and his team at the school of agricultural economics at the University of Missouri, Columbia and to Dairy Farmers of America HQ in Kansas City.

These trips were interspersed with shorter visits to Germany and the Netherlands courtesy of Michael Heinrich of GEA Westfalia Surge and Alex van Bakel of Vreba Hoff.

California, March 2008 The central valley of California is the spiritual home of the super dairy, a state with nearly 2 million dairy cows and some of the largest producers in America. It seemed the logical place to begin and when I had the opportunity to join an Alta Genetics trip to visit some of their larger partner dairies in the state I jumped at the chance, despite only having just returned from the Nuffield international conference in Australia.

The standard of dairy farming I witnessed was excellent and the Shehadey family’s new 6,500 cow dairy at Kerman near Fresno was among the most memorable visits of my study.

Seeing two 80 point rotary milking parlours side by side, milking a combined total of 900 cows an hour was not something I will quickly forget! The £50million unit was built in 2006 and is part of Producers Dairy Inc, an integrated dairy farming, milk processing and distribution business and bears the name of its founder Larry A Shehadey, who sadly passed away in 2009 at the age of 100 years old.

Larry A Shehadey Dairy, Kerman California

Designed and built in 2006 by Vance Dairy Construction of Homedale, Idaho, the Larry A Shehadey dairy was a truly impressive facility, sitting on a 400 acre site; it houses 6,500 milking cows in four 1,800 ft long sand bedded free-stall barns. The business was in transition from sand bedding to using dried composted manure solids that was being processed in windrows in the open air for a period of weeks to ensure effective pathogen kill. This area of the central valley of California receives as little as 12 inches of rain a year and as such the climate enabled outdoor composting of manure The cows were milked twice a day through two 80 point De Laval rotary parlours that were situated on either side of a six- bay tanker dock that was filling a 25,000 litre ‘semi trailer’ tanker every two and a half hours destined for the company’s processing facility in Kerman 6 miles away.

All calves and young stock were reared on the site with pre-weaning calves kept in individual raised crates in a specialist calf nursery for 8 weeks before being moved into groups of a dozen weaned calves in a covered calf barn with external loafing areas. Older heifers were reared in outdoor dry-lots until they joined the milking herd at approximately 2 years of age The cows were fed a TMR diet based on Maize & wholecrop cereal silage and alfalfa hay supplemented with whole cottonseed, soybean meal, Almond hulls, and dry corn.

California’s climate allows two crops of forage to be grown each year, typically this would comprise a winter crop of wholecrop cereal silage (barley or rye) planted in October and harvested in April yielding up to 16 tonnes to the acre, followed by corn (maize) planted in late April / early may and within 100 days can yield a staggering 35 tonnes to the acre of high starch silage. Californian maize crops typically stand 12 – 14 feet tall at maturity and by all accounts harvesting them is a truly tedious business, as all you see in front of you all day long is a wall of corn!

Everything about the Shehadey dairy was extremely impressive, as was much of what I saw in California but as I toured the central valley talking to dairymen, it became apparent that it was likely that this would be one of the last big dairies to be built in the valley for some time.

California was awash with milk, so much so that processors were imposing mandatory quotas on suppliers due to their inability to cope with the volume being produced. At the same time competition for land and particularly for water was driving up the cost of production across the state. When you added to that the prospect of an anticipated drop in milk prices in the medium term, Californian dairy farmers were bracing themselves for a rough ride.

Longer term the sustainability of dairying in the state at its current level has to be questioned. The industry is essentially mining fresh water resources at an unsustainable rate and saline water contamination of aquifer was becoming a problem in some coastal areas.

Air pollution is another major problem that the Californian dairy industry has to address, which all adds up to a challenging time ahead Consequently a lot of the smart money was moving or indeed had moved out of the state.

Many of the original Southern Californian dairymen had sold land for residential development to feed the ever growing urban sprawl of greater Los Angeles and some were using this money to fund dairy developments elsewhere in the US with Idaho and Texas particularly seeing significant growth in production in recent years.

Whilst California will remain a major milk producer for many years yet, it is an industry past its peak.

New York State & Ontario, April 2008 In April 2008 I travelled to New York State with fellow Nuffield Scholar Graham Lochhead and a small group of UK dairy farmers o a trip organised by Rob Heap, then UK general Manager for Bauer & Fan separator, to look primarily at the concept of using dried manure solids as a bedding medium for dairy cows and also at the development of on farm anaerobic digestion (AD) of cattle manure.

During the trip we visited a number of medium to large scale producers who were experimenting with AD as a means of mitigating their environmental impact, saving on energy costs and potentially generating revenue from the sale of electricity and Carbon credits.

–  –  –

Digested manure was then separated and used as bedding for the dairy cows. He was convinced that cow comfort compared favourably to sand and despite the high summer temperatures and humidity he experienced in this part of Northern New York State, cell counts and mastitis had not suffered in the transition from sand.

The decision to switch to bedding on manure solids was taken when they installed the Anaerobic digester, as sand laden manure is a no-no for AD and he wasn’t prepared to invest the significant sums of money and management time required to install and run a sand separation and recovery plant.

The cows appeared to be very clean and happy with the arrangements and were performing well, producing a high daily average of 83lbs or 37 litres of milk per cow.

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