Farmers' All Natural Creamery
Small, Amish Dairy Producer Creamery Turns Profitable
The story is a classic for agricultural entrepreneurs. Farmers’ All Natural Creamery, Wellman, Iowa, began with the idea of taking hard-to-market milk from local farmers with special circumstances, processing it and meeting the needs of a growing consumer demand for natural and organic products.
With a boost from a Value Added Producer Grant in 2003 to meet first-year operating expenses, the creamery initiated production, eventually turned the corner of breakeven and is now profitable. “We’re not as profitable as we hope to become,” noted Bill Evans, CEO, who was part of the original start-up team for the business, then served as CFO. He sees a steadily brighter future.
Currently, Evans said, one of the greatest achievements is to see the creamery products on the shelf with the “biggies” at Whole Foods (the largest natural food chain in the country) and Hy-Vee, the largest regional chain. Farmers’ All Natural sells both branded and unbranded fluid milk products.
Evans has been encouraged not only by the sales of the creamery, but by the results of work by his other firm, Kalona Organics, which does all marketing of product for the creamery and four other area businesses that sell organic or all natural products.
Building of the creamery was the entrepreneurial idea of well-known Amish farmer Eldon T. Miller and several other Amish producers, many of whom had banded together to create Farmers’ Hen House Eggs a few years earlier. Bob Adams, a Mennonite businessman from the area, and Evans were brought in to make the idea become a reality. The creamery was completed and certified in 2003.
The stakes were high for local Amish dairy producers who invested in the creamery or looked to it to buy their milk. They did not have access to creamery processing (primarily organic) because their religious convictions did not allow them to sell their raw product on Sundays, and other organic processors within reasonable distance insisted on Sunday pick-ups. This forced organic producers to sell into non-organic markets and took away the premium value of their natural products.
Simultaneously, the demand for their known quality organic product was skyrocketing, attested to by the 20 percent annual increase in sales of organic products (higher for dairy) nationally. Organic foods still enjoy a 20 percent increase in sales annually. At the time of start-up, organic research reports indicated that 40 percent of consumers who wished to purchase organic milk did not have access to product in their grocery stores.
The creamery was a way to match producer needs and product with an emerging, growing consumer market. At the same time, the public perception of trust, honesty, good land/farmer stewardship and quality of the Amish culture could become a strong marketing asset. Traditionally, Amish and Mennonite farmers maintain a limit of 80 tillable acres per farm, with average dairy herds limited to 20-30 cows.
As an additional niche marketing aspect, the creamery began with and still uses a VAT pasteurizing process, which gives low but allowable temperature pasteurization. It is a slower process and requires considerable attention. For these reasons, the larger dairy plants have gone to a more cost effective and faster process. The VAT process causes less damage to the milk taste and less reduction of dietary value. Farmers’ All Natural products are non-homogenized, which gives a favorable market edge among the niche target consumer groups. The VAT system addresses bacterial issues.
The creamery also was able to manufacture the distinctive clear bottles that carried products with the Farmers’ label, further raising profit potential. Subsequently, as production volume increased, it has become feasible to purchase the bottles.
Built-in markets and new markets were the floor for the creamery’s products at its inception and throughout the last four years. However, Evans noted that with the recessionary economic times, research is lacking into what impact will be felt in the specialty, organic foods industry – and primarily by his company. He and his sales team are currently working hard to get a read on what slower overall consumer spending during an economic downturn means in terms of those who already choose to spend more for organic or all-natural foods.
The original grant funding was used to do just two things: purchase milk from the Amish Mennonite organic and natural farmers in the area; and to meet payroll expense for key personnel during the start-up period.
Original goals were to produce varied fluid milk products as well as cheeses. In the first few years of operation, Evans said the business began to see that it would be better suited to meeting market demands for fluid milks and discontinuing attempts to produce cheese products at this facility. Demand for cheese products is met through a cheese production firm in the region.
“We are still adding producers, but we have more milk than we can use at this point,” said Evans. The marketing of product to bring the creamery up to full production levels is the top priority of Evans and his Kalona Organics staff. Currently, creamery production is at about 50 percent capacity. Profit lines will increase as production increases.
The number of producers has grown moderately since the beginning years – 21 producers who are investors and 35 who are producers. Three-quarters of the producers are Amish, with the others being conservative Mennonites.
How important was the $302,000 grant funding for the start-up specialty food creamery? It was essential, according to Evans. “The VAPG enabled us to get started with a few customers and producers. It was a necessary stimulus.”
The rest is a classic success tale.
About USDA VAPG
VAPG funding has been offered by the USDA periodically since the early 2000s. A new round of funding is anticipated to be announced in the coming months. To be considered value added, projects must show how products are differentiated in specific ways from commodity crops. Typically, projects must also show how they may deliver greater returns to producers.
Independent producers, farmer or rancher cooperatives, agricultural producer groups, and producer-owned business ventures, including non-profit organizations, may apply. In previous cycles, applicants were required to be producers of the raw commodity who will maintain ownership of that commodity through the process of creating a value-added product. Grants have been available for planning projects (such as marketing and business plans and feasibility studies) and working capital projects (which might include wages or packaging supplies). (http://www.rd.usda.gov/)