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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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Mark Stoermann is the environmental manager for Fair Oaks Farms. I had previously met Mark at an Anaerobic Digestion seminar at the World Dairy Expo three weeks earlier where he had offered to show me around Fair Oaks’ new $12million Manure management and anaerobic digestion facility Mark is a microbiologist by training, who had worked in the food industry prior to coming to Fair Oaks to develop the cheese dairy and visitor centre, had been instrumental in designing and building the facility. It had only just recently been commissioned a matter of weeks prior to my visit and was, even by Fair Oaks standards, an impressive piece of engineering.

To supply the plant, 400,000 gallons of sand laden manure a day is scraped from the freestall barns of 3 of the dairies by tractor drawn vacuum tankers equipped with giant squeegees mounted under their draw bars and transported to the central facility where it is discharged into a reception pit.

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In order to process the huge volume of relatively dilute manure generated efficiently, the digester operates on a fast cycle time of just 14 days. Post initial digestion the manure solids are separated and returned to the digester vessel. This enables solids to be retained in the system, in higher concentration than in raw manure, for a longer period, to ensure that the maximum amounts of organic solids are digested, and the maximum amount of biogas recovered.

The liquid fraction then passes through a series of polymer flocculation tanks which remove most of the suspended phosphorous and small solid particles. The remaining liquid, virtually odourless but relatively rich in Nitrogen & Potash is stored in two 36 million gallon lagoons before being returned via umbilical injectors or centre pivot irrigators as fertiliser for crops of maize and alfalfa grown on the farms 25,000 acres of cropped land. Polymer Flocculation tanks Phosphorous rich solids are stored and spread as required according to soil indices with the surplus sold off the farm as fertiliser.

The system was still being ramped up to full capacity when I visited, with initial gas production used to heat the main digester vessel. Once fully operational it is intended that the gas generated will be cleaned and either sold back to the local gas grid or used to power the company’s fleet of trucks that delivered bulk milk to customers as far afield as Georgia.

Effective manure management is a critical part of FOF’s risk management strategy and the whole system is not only hugely impressive but was delivering in all key areas. By anaerobically digesting the manure and separating out the solids, nutrient management is significantly enhanced, and odour and pathogen loads minimised and environmental risk mitigated

Odour & Fly Management

When I arrived at Fair Oaks on a warm day in October, with an ambient temperature in excess of 20 degrees C, the one thing that was immediately apparent was the smell...or lack of it. Considering I was standing in the middle of a 30,000 cow dairy farm, barely a kilometre from 70 million gallons of separated, digested cow slurry, that was in the process of being stirred and spread, there was no smell... and no flies.

Gary Corbett later revealed that the business spends as much as $2 million dollars a year on fly suppression and control measures, a significant amount of which is on R&D with Purdue University’s Entomology department, which would ultimately benefit the whole US dairy industry.

Odour and fly control contribute greatly to the Fair Oaks’ good neighbour policy that in itself is a critical component of any future growth strategy, however the $12million Dollars that the business has recently invested in manure handling and Anaerobic Digestion is far more than an expensive PR exercise Better management of nutrients and the resultant improved crop productivity has reduced the business’s exposure to volatile feed and fertiliser markets and mitigated the risks of environmental pollution.

Lower methane emissions from manure and a marked reduction in the requirement for purchased fertiliser & energy provides not only a cost benefit to the business but also a quantifiable reduction in its Carbon Footprint, which whilst a good PR story now may well prove to be an invaluable marketing tool in the future And, whilst Anaerobic Digestion was introduced as part of an environmental and nutrient management policy, Fair Oaks Farms is now a significant net seller of energy and as such is well positioned to benefit from future rises in energy prices Leveraging success Fair Oaks Farms’ business model is extremely effective. Mike McCloskey & Tim den Dulk have built themselves a very powerful position within the milk supply chain, managing the interface with the customer, through the establishment of a lean and effective co-operative structure of focused large scale producers. They are able to offer a genuine value proposition to retailers and processors, which in turn add significant value to their own milk production business.

The dairy operations are amongst the most innovative and well managed in the US and their approach to all aspects of the business is clear and focused. It is difficult to select a single area that really makes this business stand out, however the visitor centre is to my mind perhaps the most inspired innovation in a business where they appear at every turn.

I would be very surprised if there is a better example of a large-scale intensive livestock business, anywhere in the world, that has managed to do a more effective job of turning what conventional wisdom would consider being one of its biggest liabilities into such a strategic and commercial asset.

One final factor in the Fair Oaks success story is how the partners have, and continue to;

leverage their success by investing in new talent, often nurtured from within the organisation.

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The constant drive to identify strategic opportunities and threats ahead of the rest of the market and the ability to develop innovative value creating solutions to the challenges that undermine the profitability of all dairy farms is a distinguishing characteristic of this most successful and dynamic business.

Fair Oaks Farms is without doubt the most impressive farming business I have ever seen.

Breathtaking in terms of its vision, strategy and sheer scale and clinical yet reassuringly sensitive in all aspects of its operational, animal welfare and environmental management.

For me and I am sure for the majority of consumers, this is the acceptable face of industrial livestock farming.

Vreba Hoff Dairy Development LLP, Wauseon, Ohio & Vreba Dairy, Vredepeel, Netherlands Milk Quotas, ever tightening environmental regulations and high land values are major obstacles to dairy expansion in Europe and nowhere is this more acute than the Netherlands, where the cost of expanding production in 1999 was estimated at as high as 30,000 Euros per cow (including land & quota purchase) This might be a problem for many progressively minded dairy farmers but not for Willy van Bakel, a maverick dairy entrepreneur in every sense. Van Bakel along with his brothers, Alex & Rene is the largest dairy farmer in the Netherlands, milking 1,200 cows on a single unit at Vredepeel, in south east, Holland. The family also ran a successful agricultural real estate and quota brokerage business, trading farms and dairying assets within the Netherlands and Northern Europe.

Willy van Bakel.

In the 1960’s Van Bakels cousins, the Vander Hoff family emigrated from Holland to Michigan to start a new life dairy farming in the US. They progressively grew their dairy business to 1,800 cows. In 1998, they doubled the size of their herd and built a state of the art 3,500 cow dairy in Hudson Michigan in partnership with Willy van Bakel. Three years later they built a second.

Vreba Hoff Dairy 2, Hudson Michigan Today they milk 7,500cows, own 4,500 acres of land and contract farm a further 3,000 acres. This is an impressive feat in its own right, but it is how they leveraged that success that is more extraordinary.

Asset Arbitrage Steven Vander Hoff and Willy van Bakel saw an opportunity to capitalise on their collective expertise and in 1998 set up Vreba Hoff Dairy Development LLC to provide a one stop shop service for Dutch and German dairy farmers wishing to relocate to the US.

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Maize silage being clamped Vreba-Hoff Dairy, Oct 2008 Van Bakel handled the sale of farms, cows and quota in the Netherlands, whilst Vander Hoff, one of 6 siblings involved in the US farming operation, looked after business stateside locating suitable sites, negotiating land purchases, permits and cropping contracts with neighbouring farmers, organising the design and build of the dairy facilities, sourcing of cattle and potential customers for the milk.

The business also provided a support network to ease the transition process for the families, identifying suitable schools and other necessary services that would otherwise prove time consuming and potentially problematic for the expats who had to quickly come to terms with farming on an altogether larger scale and a very different climate to what they were used to.

In 10 years, Vreba Hoff has relocated over 50 Dutch, German and Canadian dairy farmers to new dairies in Michigan, Ohio & Indiana. The standard unit size is typically 699 cows; just below the 700 cow threshold at which point stringent CAFO environmental regulations are applied.

Once established the units can be expanded and the company provides a full business and technical consultancy service to help their clients establish, manage and grow their businesses as required. This size is not prescriptive however and Vreba Hoff has built client dairies for up to 5,000 cows, an example being the Van Deurzen Dairy in Ohio that commenced operations in 2007.

Van Deurzen dairy

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Wouter owns only the 100 acre site his dairy sits on and sub contracts out all forage production to neighbouring farmers. Employing a mix of Hispanic and Dutch labour and under the guidance of Jan Janssen, Vreba-Hoff’s technical-director, he was, after a challenging start beginning to make considerable progress towards what Jan described as an ‘acceptable level of performance’.

100 cow De-Laval rotary milking parlour at Van Deurzen Dairy ‘We would not generally advise clients to build a dairy this big as a first step’ but added that Wouters lack of dairying experience has probably worked in his favour as he had no preconceptions about how a dairy farm of this size ought to be managed.’

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Adapting the business model The Vreba Hoff model has been a very lucrative one but as land values in the US rose on the back of improving farm profitability and quota values in Holland fell, the opportunities for would be émigrés began to look less attractive and by 2007 the stream of prospective clients began to dry up.

Consequently Vreba Hoff switched direction and started developing a new business model based around a capital fund raised largely from private investors in Holland. The fund would be leveraged against and used to buy land and build a number of 2-3,000 cow dairies which Vreba Hoff would lease and operate themselves. They planned to put a young manager into each one and give them the opportunity to earn a profit related equity stake in the business in a similar way that Kenn Buelow had at Holsum dairies in Wisconsin.

This would allow Vreba Hoff to continue to grow their dairy business and to maintain an income stream from their construction assets and the expertise that they had developed building dairies over the previous ten years.

To support this growth, the company purchased a former beef feedlot in Oklahoma which it now runs as a heifer rearing facility. With capacity for 15,000 head and potential to expand to over 30,000, the facility is able to service all the Vreba Hoff dairies and supply stock to third party clients.

When I visited, they had just sold a consignment of 2,500 heifers to stock a new dairy in Russia, as the price of heifers in Europe was significantly higher than in the US and being outside the EU, Russia was able to source live animals from the USA.

Challenging times Vreba Hoff had enjoyed ten years of virtually unbroken success, on the back of the post millennium dairy boom in the US. The model had allowed them to capitalise on the huge disparity between asset values on either side of the Atlantic and their expertise and entrepreneurial spirit meant that they were able to extract a margin out of step in the process. However risk management and environmental compliance did not seem as high up the agenda as they had been on other businesses I visited.

They were at the time of my visit, themselves facing severe fines for a number of breaches of Michigan state environmental laws, with regard to manure spills and water course contamination. A number of their client dairies were in a similar position in Ohio and Indiana; something Vreba Hoff were keen to distance themselves from, not wishing to add to their existing problems.

Subsequently, a combination of falling milk prices and the wider credit crunch meant that they have been unable to raise sufficient finance to complete the construction of the proposed new dairies. To add to their mounting woes, a number of client dairies are in dispute with them over alleged mismanagement of their assets during the relocation process.

The American dream appeared to be turning into a nightmare for Vreba Hoff and some of their clients. A small number of Vreba Hoff expats have returned to Europe having lost all their equity in the extremely volatile US milk & feed markets of the last 2 years. Whilst this is unfortunate for the individuals concerned, there was always a significant risk associated with relocation and it was inevitable that out of 50 farmers that chose to relocate, there would be some that didn’t make it.

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