Bulletin 864

15 Measures
of Dairy Farm
Competitiveness

1
 15 Measures of
Dairy Farm Competitiveness
Authors Our objective is to support and promote profitable,
sustainable, and environmentally sound growth of
Dianne Shoemaker Ohio’s dairy industry through unbiased, research-
Maurice Eastridge based education.
Don Breece
Julia Woodruff We encourage you to visit our web site for additional
Duane Rader information and links to Ohio’s dairy industry
David Marrison partners: http://dairy.osu.edu.

Dairy Excel is a multi-faceted management education

program specifically designed to improve the
competitiveness of the Ohio dairy industry.

This is a for-sale publication. Additional copies can

be ordered from your local Ohio State University
Extension office. For a list of OSU Extension offices, go
to: http://extension.osu.edu/counties.php

Originally Printed October 1997; Revised January 2008

Authors of the original publication were: Jim Polson,

Dianne Shoemaker, Ernie Oelker, Gary Schnitkey

Copyright © 2008, The Ohio State University

Ohio State University Extension embraces human diversity and is

committed to ensuring that all research and related educational programs
are available to clientele on a nondiscriminatory basis without regard to
race, color, religion, sex, age, national origin, sexual orientation, gender
identity or expression, disability, or veteran status. This statement is in
accordance with United States Civil Rights Laws and the USDA.
Keith L. Smith, Ph.D., Associate Vice President for Agricultural
Administration and Director, Ohio State University Extension
TDD No. 800-589-8292 (Ohio only) or 614-292-1868

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Contents
Introduction 4

Gaining Control of Your Business 6

The 15 Measures 8

Measure 1: Rate of Production — Pounds of Milk Sold Per Worker 10

Measure 2: Cost Control — Total Feed Cost Per Cwt of Milk Sold 12

Measure 3: Cost Control — Milking Herd Feed Cost Per Cwt of Milk Sold 14

Measure 4: Cost Control — Operating Expense Ratio 16

Measure 5: Capital Efficiency — Dairy Investment Per Cow 18

Measure 6: Capital Efficiency — Asset Turnover Ratio 20

Measure 7: Profitability — Net Farm Income 22

Measure 8: Profitability — Rate of Return on Farm Assets 24

Measure 9: Liquidity — Current Ratio and Working Capital 26

Measure 10: Repayment Schedule — Scheduled Debt Payment 28

Measure 11: Solvency — Debt to Asset Ratio 30

Measure 12: Solvency — Debt Per Cow 32

Measure 13: Mission Statement 34

Measure 14: Maintain Family’s Standard of Living 36

Measure 15: Motivated Labor Force 38

The Fork in the Road for Dairy Farms 40

References 43

Appendix A: Feed Cost and Quantity Calculations 45

Appendix B: Projected Feed Costs Per Cwt of Milk Sold and Amount of Feed Needed for Dairy Cattle 48

Appendix C: Mission Statement Worksheet and Examples of Mission Statements 50

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 Introduction
These measures represent key characteristics of the The 15 measures fall into 10 broad areas, which
most competitive dairy producers in the Midwest. together provide a good view of the competitiveness of
Some dairy producers already exceed many of the a dairy farm business. The 10 areas are:
measures. While a single dairy business is unlikely to
meet all 15 measures, dairy producers who meet most 1. Rate of production
of the measures are competitive with dairy producers 2. Cost control
anywhere in the world and enjoy a high standard of 3. Capital efficiency
living. 4. Profitability
5. Liquidity
First published in 1997, the 15 measures remain strong
6. Repayment schedule
indicators of profitable, sustainable dairy businesses.
As we reviewed and revised the measures, some 7. Solvency
competitive levels were adjusted to reflect current 8. Mission
industry trends and realities. Overall, the measures 9. Maintain family’s standard of living
continue to represent strong indicators of success in 10. Motivated labor force
the dairy industry.
Major problems in any one area can seriously limit
Some dairy businesses do not meet many of the the ability of a dairy farm to compete. We selected one
measures. Without change, these producers will likely or two measures in each area as indicators of how the
be exiting the dairy business within the next 10 years. farm is doing.

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As a dairy producer, you should evaluate and analyze Because competitiveness requires a commitment to
your farm from many viewpoints. Farms performing constant improvement and change, these measures will
well in some areas may have serious weaknesses in continue to change over time. Dairy producers who
others. Evaluating your farm from several different want to stay competitive must continue to improve,
perspectives as you plan for the future ensures modernize, and change.
that your business is structured and managed for
competitiveness and growth. Being competitive is more than having the right
technology. For example, a dairy farm family with
Following the complete listing of the 15 measures better-than-average management must increase the
are pages describing each measure in detail. These number of dairy cows on the farm by approximately
pages explain each measure, tell how to compute and 60% every 10 years to maintain the family’s standard
interpret it, and discuss the desirable range. We also of living. Most of that increase is required to offset
suggest changes to help a dairy operation move into inflation. Short- and long-term decisions can greatly
the desirable range. impact the ability of a dairy business to grow in the
future.
Evaluating the profitability and sustainability of
your dairy farm business based on only one or a Dairy farm income per cow has gone up slightly
few measures may or may not result in an accurate during the last 45 years, but the declining value of the
assessment. All of the areas represented by the dollar (inflation) has dramatically reduced what you
measures are important to the long-term viability of a can buy from the income from one cow. Historically,
business — and are related to and influenced by each a dairy farm manager has needed to increase cow
other. Look for those relationships in the discussion of numbers by 50% every 10 years just to offset the
each measure. impact of inflation. However, because more cows mean
higher incomes and more income tax, farmers must
Many dairy producers do not have the desire or the increase cow numbers at least another 10% to pay the
resources to make the changes necessary to compete additional tax on the higher income.
with the most competitive farms. Even when they
have the desire, limited resources make some of these Each farm, farm manager, and farm family is different.
measures difficult for the average dairy producer to At the end of this publication in the section titled The
achieve. Producers who will not or cannot achieve the Fork in the Road for Dairy Farms, we offer suggestions
desired ranges may continue to operate and support a to dairy farm managers who:
family for many years. However, primarily because of
inflation, those who do not make changes to become 1. Already are competitive
or stay competitive in a constantly changing industry
can expect a declining standard of living over time. 2. Want to become competitive
They also run the risk of using up any equity they have
built in their business over time. 3. Would like to become competitive but cannot

4. Do not want to become competitive.

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 Gaining Control
of Your Business
Business managers gain and retain control of their or more of our 15 measures can serve as a target. In
businesses one step at a time. Thinking that you can most cases, a manager will need to set a similar but
quickly change or improve all 15 areas at once is different and more appropriate target for his or her
unrealistic. Frequently, it takes many little changes and specific business. Thinking you can quickly move to
perhaps several larger moves over months and even the level of the most competitive dairy farms in the
years to make a major change in a business. However, country is unrealistic. However, setting goals higher
most dairy farmers should compare their operation than current performance and starting to improve
with all 15 of these measures at least once per year. your operation is both realistic and necessary.
Farmers who want to maintain their operations in the
long run must stay competitive. Step 2: Collect Information
Four broad steps for gaining control of your business The second step in gaining control of a part of
are: your business is collecting information to see how
your farm compares with other dairy farms. Many
Step 1: Set a Goal producers would benefit from using a computerized
year-end analysis program, such as the one used to
The first step in gaining control of any part of a compile the New York Dairy Farm Business Summary,
business is to set a goal or a target. In some cases, one the Northeast Dairy Farm Summary, or FINBIN

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Summaries maintained by the Center for Farm A key, yet often overlooked, management issue is:
Financial Management at the University of Minnesota. Who is responsible for setting the goals (Step 1),
collecting the information (Step 2), and comparing
The FINAN program, one of the FINPACK programs progress against the set goals (Step 3)? Frequently,
supported by the Center for Farm Financial different people will set goals, collect information, and
Management, is used by Extension in Ohio and 30 monitor different parts of the business. Important
other states to make such calculations. The FINAN will questions are: Does someone have the responsibility
calculate most of the financial ratios listed in the 15 for performing each of these steps for the goals? How
measures. The records needed to complete a FINAN often is this person to do it? With whom are they to
are beginning-of-the-year and end-of-the-year balance share the information? What is this person to do if they
sheets, performance information, and cash records find a major problem? Management must ensure that
with accrual adjustments. If you use FINAN for several someone is responsible and follows through!
years, you can see easily see and evaluate business
trends over time. Step 4: Take Corrective Action
Step 3: Monitor Your Progress The fourth and most important step is taking the
appropriate corrective action, if needed. If the business
The third step in gaining control of a part of your is meeting a goal, no action is required unless the goal
business is monitoring your progress — that is, is too low. If the business is exceeding a goal, action
comparing how you are doing with your goals. You may still be necessary. If the goal is exceeded because
should make this comparison while the information of desirable behavior by one or more people in the
is still timely. Finding out today that the ration you business, management may want to praise and reward
were feeding six months ago caused a major drop in those who helped exceed the goal. Management also
production is not very meaningful. However, you may may want to consider whether the goal is too low, but
need to calculate the debt to asset ratio only once per management must be careful not to discourage high
year if your operation does not undergo any major performers by raising the goal and “rewarding” high
financial changes. performance with even higher expectations.

To see how monitoring works, consider this example: If the goal is not met, management should do one of
two things — consider if the goal is too high and needs
The management team sets a goal of lowering the to be re-evaluated, or take corrective action based on
operating expense ratio (Measure 4) to no more than why the goal was not met. Taking corrective action
70%. First, a budget should be developed to meet includes identifying problems and implementing the
the goal. Next, someone should measure income and necessary steps to remedy the situation. Managers who
expenses regularly (probably monthly) throughout make things happen are able to identify the cause of a
the year. If either factor changes, the team should take problem, then solve it. They usually ask “Why?” until
corrective action in time to keep the expense ratio in they fully understand a problem. Then they entrust
line. If the person collecting the information is not a someone to solve the problem.
manager, he or she should report the information to a
designated member of the management team.

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 The 15 Measures
Measure Competitive Level

Rate of production
1. Pounds of milk sold per worker (p. 10) Tie Stall Free-stall parlor
Large Breed ≥ 600,000 ≥ 1,000,000
Small Breed ≥ 450,000 ≥ 750,000

Cost Control
2. Total feed cost per cwt of milk sold (p. 12) ≤ $7.00 per cwt with replacements
≤ $5.00 per cwt without replacements
3. Milking herd feed cost per cwt of milk sold (p. 14) ≤ $4.75 per cwt
4. Operating expense ratio (OER) (p. 16) ≤ 70%

Capital Efficiency
5. Dairy investment per cow (p. 18) ≤ $7,000 per cow
6. Asset turnover ratio (ATR) (p. 20) ≥ 0.60

Profitability
7. Net farm income (NFI) (p. 22) ≥ $130,000 per owner/operator family
8. Rate of return on farm assets (ROA) (p. 24) > loan interest rates

Liquidity
9. Current ratio (CR) and CR 1.5 to 2.5
working capital (WC) (p. 26) WC Positive and stable

Repayment Schedule
10. Scheduled debt payment (p. 28) ≤ 15% of gross receipts
(principal, interest, and capital lease) ≤ $500 per cow

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Measure Competitive Level

Solvency
11. Debt to asset ratio (D/A) (p. 30) ≤ 40%
12. Debt per cow (p. 32) ≤ $2,500 if not expanding
≤ $3,500 during expansion

Mission
13. The management team agrees on Written mission statement
why they are in business (p. 34)

Maintain Family’s Standard of Living

14. Owner/operator(s) maintain or Maintain standard of living over time
increase their standard of living
by continual change to adopt proven
technology, capture economies of size,
or market opportunities so that the
family(ies) supported by the business
can maintain their standard(s) of living. (p. 36)

Motivated Labor Force

15. Managers use personnel management
practices that lead to well-trained, enthusiastic,
and empowered family members and employees
who share a commitment to the mission and
goals of the business. (p. 38)

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 Measure 1
Rate of Production
Pounds of Milk Sold per Worker
Competitive Level:

Tie Stall or Stanchion Free-Stall Parlor

Large breed ≥ 600,000 pounds per worker ≥ 1,000,000 pounds per worker
Small breed ≥ 450,000 pounds per worker ≥ 750,000 pounds per worker

Calculation: Example:
Total pounds (lb) of milk sold 8,500,000 lb milk sold
÷ full-time worker equivalents (FTE) ÷ (20,000 hours/2,500 hr)
= 1,062,500 pounds milk sold per worker

The increasing cost of labor, combined with its impact To calculate this measure:
on the overall cost of production, means a dairy
manager needs to measure, evaluate, and monitor 1. Calculate total FTE on the farm per year.
labor efficiency. An excellent way to accomplish this Divide total hours of paid and unpaid labor
is by calculating the pounds of milk sold per full-time for producing your dairy’s feed crops and for
worker. This efficiency factor combines labor efficiency operating the dairy herd by 2,500.
and dairy herd productivity into a single indicator.
2. Divide total pounds of milk sold by total FTE
The calculation of this measure is significantly per year. Total pounds of milk sold should
influenced by your definition of an FTE. In Ohio, be taken from the milk checks. Herd average
an FTE is often defined as an adult who works 50 figures from dairy record systems are not
hours per week for 50 weeks (allowing for two weeks an accurate reflection of milk sold because
of vacation). This translates into 2,500 work hours they include fresh cow milk, milk discarded
for each FTE. It is vital that you include all paid and from treated cows, and milk fed to calves. The
unpaid labor in this calculation. Smaller dairy farms pounds of salable milk fed to calves should be
are more likely to have at least some unpaid family added to pounds of milk sold to reflect total
labor from a spouse, children, or the operator who potential milk sales.
likely works more than 2,500 hours per year. When
analyzing and comparing your farm to other benchmark Pounds of milk sold per worker is an important tool
data, it is important to determine how the reporting for evaluating the productivity of workers and cattle.
agency defines a full-time worker. It combines efficient labor utilization with good to
excellent herd production. If all feed is purchased, the
general rule is to double these benchmarks.

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Because free-stall parlor systems can handle more 2. Evaluate labor efficiency. Antiquated facilities
cows, these systems allow more pounds of milk per and uncomfortable working conditions reduce
year per worker than tie stall or stanchion systems. labor efficiency. Careful hiring also plays an
Tie stall or stanchion barns entail considerably higher important role in labor efficiency. Employee
costs per cow than large, modern free-stall facilities. training, motivation, and pride in doing a job
The combination of lower investment per cow and well help workers to be more efficient and
more efficient labor utilization make free-stall parlor effective, whether they are family members or
systems much more economical, because they generally unrelated employees. Workers in tie stall or
result in lower costs for producing each unit of milk. stanchion systems should be able to handle 30
However, existing tie stall or stanchion facilities may to 35 cows per FTE, including raising crops.
be able to compete with free-stall parlor systems if the Workers in free-stall systems should be able to
operation carries little or no debt. handle 40 to 50 cows per worker.

Fewer pounds of milk per worker will likely be sold 3. Apply the four steps in the Gaining Control of
per year for small vs. large breed herds, but the value Your Business section in the Introduction. Set
of the milk sold per year may be similar under similar a realistic goal, collect information for your
management systems. This can occur because of the own business, compare your business with the
higher value per cwt of milk for the small breeds of goal, and take appropriate corrective action, if
dairy cattle (milk is higher in concentration of fat and needed.
protein). However, because the value of milk sold is
affected by milk price fluctuations, it is not very useful
for measuring labor productivity trends over time.

If the pounds of milk sold per worker is below the

competitive level:

1. Evaluate herd productivity. To achieve the

desired level of pounds of milk sold per
worker, cows will most likely need to be above
average in production for their breed. Many
competitive farmers implement strategies to
increase herd productivity. Some strategies
include feeding balanced rations, optimizing
cow comfort, using proven milk production
technologies, filling facilities to above 100% of
capacity, and milking more than two times per
day.

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 Measure 2
Cost Control
Total Feed Cost per Cwt of Milk Sold
Competitive Level:
A. Less than or equal to $7.00 per cwt, if replacements are raised on the farm.

B. Less than or equal to $5.00 per cwt, if replacements are custom raised.

Note: Feed costs per cwt of milk sold can be quite variable among farms. See Appendix B for further
illustration of this potential variability.

Calculation: Example for A:

A. Total costs of feeds fed to all dairy cows $ 308, 000 purchased feed
(lactating and dry) and replacement heifers + $ 270,000 homegrown feed
÷ total cwt of milk sold (for the same time = $ 578,000 total feed
period)
÷ 85,000 cwt of milk
B. Total costs of feeds fed to all dairy cows = $ 6.80 feed cost per cwt of milk sold
÷ total cwt of milk sold (for the same time
period)

Total feed costs per cwt of milk sold is a measure of the how to calculate the cost of producing your feed.
effectiveness of management in controlling the largest Comparing feed production costs with market prices
cost item in producing milk. This measure accounts will help you evaluate the efficiency of your cropping
for all of the feed provided to the lactating cows, dry program.
cows, and heifers since the sale of milk is the primary
revenue stream for paying for all feed expenses. The New York Farm Business Summary uses cost of
Generally, 65% of the feed costs for a dairy herd that cash crop inputs to represent homegrown feed costs,
raises it own replacements will be for the lactating but this calculation does not include machinery costs.
cows, 30% for the heifers, and 5% for the dry cows. We For this analysis, calculate all machinery costs and
suggest using the market value for homegrown feeds allocate a portion to the crops used as dairy feed.
fed to livestock. Feed harvested by the cows or heifers
from pasture can be valued based on the value of hay. Reducing cash outlay for purchased feed is not
Using the market value will give you a clearer picture necessarily a good way to reduce feed costs.
of the competitiveness of your dairy enterprise. Homegrown feed is sometimes more expensive than
purchased feed. If purchased feed costs per cow
Many dairy farmers can purchase feed more cheaply are kept too low, milk production may be less than
than they can raise it. In Appendix A, we discuss optimal, and total feed cost per cwt of milk sold may
still be high.

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When you use market price or purchase most of your 7. Keep dry periods below 60 days.
feed, feed costs will fluctuate with market prices. Table
A in Appendix B shows how feed costs vary with 8. Keep culling rates at 30% or less by managing
different corn and hay prices. Use this table to help reproduction and herd health to reduce
set a more realistic feed-cost goal when feed prices are replacement costs.
unusually high or low and a goal of $7.00 per cwt of
milk sold is not appropriate. 9. Keep age at first calving between 22 and 24
months to reduce costs per replacement
If feed cost is above $7.00 per cwt of milk sold: animal.

If you have followed the principles in the section on 10. Investigate for management areas other than
Gaining Control of Your Business in the Introduction feed that may be limiting milk yield such as
and find you are not meeting your feed cost goals, housing, mammary health, disease, etc.
consider these actions:
11. Reduce feed losses from storage, losses during
1. Produce or purchase quality forages for all mixing and delivery, and refusals at the feed
cattle. You cannot afford to feed poor-quality bunk.
forages. However, quality of feed should be
appropriate to the animal’s nutritional needs. Farms can simultaneously have low feed costs per cow
High producing cows need the highest-quality and extremely high feed costs per cwt of milk sold.
forage. That same quality would be wasteful This is frequently a result of feeding poor-quality
for gestating heifers or dry cows. forage and/or not balancing the ration for optimal
production, resulting in low production. Also, errors
2. Frequently balance rations for all groups based in feed mixing and delivery can have adverse effects on
on current feed analyses. milk production and feed costs. Feed tracking software
for TMR mixers can help monitor accuracy of feed
3. Keep crop production input costs low by using weighing and delivery.
manure nutrients, testing soil, and purchasing
carefully. Total feed costs will also be influenced by how calves
and heifers are reared. Longer milk-feeding periods
4. Keep purchased feed costs low by careful and feeding for higher rates of gain in the pre-weaned
purchasing (e.g., feed commodity contracting) period will increase costs while restricted milk feeding
and efficient use of feed. and early weaning will decrease total costs. However,
overall health and performance must be considered as
5. Keep crop equipment costs per acre low by well as the targeted age at first calving when calf-raising
using custom operators, purchasing expensive strategies are considered.
machinery with neighbors, or purchasing
feeds.

6. Feed for high production if cows have the

genetic ability and you have adequate facilities.

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 Measure 3
Cost Control
Milking Herd Feed Cost per Cwt of Milk Sold
Competitive Level:
Less than or equal to $4.75 per cwt

Note: Feed costs per cwt of milk sold can be quite variable among farms. See Appendix B for further
illustration of this potential variability.

Calculation: Example for Annual Costs:

$200,000 purchased feed
Total costs of feed fed to lactating cows + $176,000 homegrown feed
÷ total cwt of milk sold (for the same time period) = $376,000 total feed cost

÷ 85,000 cwt of milk

= $4.42 milking herd feed costs per cwt milk sold

To quickly evaluate feed cost control or to find out 4. Whether or not the ration is balanced
if a more detailed analysis of feed costs is necessary, 5. Feed losses from storage, handling, and
calculate the milking herd feed cost per cwt of milk refusals at the feed bunk
sold using current market prices for all feeds fed. 6. Culling rate from the herd
7. Length of calving interval.
1. For a day, measure the quantities of each feed
(including purchased and homegrown) fed to If feed costs are above the desired level, consider these
lactating cows. Include all vitamins, minerals, actions:
and supplements.
1. Check forage quality and improve it if
2. Multiply the feed quantities by current market necessary.
prices to arrive at the cost of feed per day.
2. Make sure the ration is balanced and cows are
3. Divide the cost of feed per day by the cwt of eating what you think they are eating.
milk sold per day.
3. Make sure the ration is balanced for a
Factors affecting feed costs per cwt: reasonable level of production.

1. Level of milk production 4. Check the cost of ingredients and make

2. Current market prices of feeds changes to cut costs without lowering
3. Quality of forages fed and the effect on production.
purchased feed inputs

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 5. Eliminate causes of low production, such as does not take into account the value of the milk, which
poor cow comfort, mastitis, and poor feed will depend on its protein and fat composition (plus
bunk management. some quality indicators), and the feeding program
influences the fat and protein concentration in milk.
Feed costs fluctuate with the market price of the feeds.
Table C in Appendix B shows how milking herd feed Therefore, monitoring income over feed costs (IOFC)
costs vary with different corn and hay prices. Use this is important. The goal for IOFC for the milking herd is
table to help set a more realistic feed cost goal when to be > $6.00/cow/day.
feed prices are unusually high or low and a goal of
$4.75 per cwt of milk sold is not appropriate. Feed efficiency on dairy farms affects IOFC. One
common method to calculate feed efficiency is: 3.5%
Additional Discussion on Calculating fat-corrected milk (FCM, lb) / DM intake (lb). The
equation for calculating 3.5 FCM (lb) = (0.432 x lb
Feed Cost Measures milk) + (16.23 x lb milk fat). The desired range for
In addition to assessing feed costs per cwt of milk, this feed efficiency is 1.4 to 1.6. Our goal is usually to
additional methods for assessing feed costs are useful. increase DM intake, but if the intake increases without
Total feed costs for the herd as a percentage of milk a response in milk yield, then some other positive
income should be 30% or less. Feed costs for lactating response (for example, improved body condition)
cows usually range from $0.06 to 0.08/lb of dietary dry should be occurring or the increase in feed costs is not
matter (DM), and thus the cost per cow per day will making an economic return.
then depend on DM intake. Feed cost per cwt of milk

15
 Measure 4
Cost Control
Operating Expense Ratio (OER)
Competitive Level:
Less than or equal to 70%

Calculation: Example:
(Total cash operating expenses - farm interest expense) $ 1,088,000 expenses
÷ gross farm income x 100 - $ 52,000 interest
= $ 1,036,000 total operating expenses

÷ $ 1,450,000 gross farm income

= 0.71
x 100
= 71 % operating expense ratio

This ratio indicates the percentage of the gross farm 3. Add expenses that were prepaid in the
income used to pay operating expenses. Expenses, not previous tax year for items that were used to
including interest, should be less than 70% of the gross produce milk in the year being analyzed.
farm income of a dairy business. When the percentage
is lower, more money is available for loan payments 4. Add expenses for items that were used to
(principal and interest), family living, improvements, produce milk but were not included on the
and savings. Form 1040. This would include unpaid bills.

Take total cash operating expenses directly from 5. Subtract any expenses that were paid in the
Form 1040, Schedule F for the year being analyzed. year being analyzed for items used in previous
These represent cash expenses that may or may not production years.
include all of the expenses incurred for production of
milk in the year being analyzed. Make these (accrual) Gross farm income includes cash farm income
adjustments as needed: adjusted for changes in inventories from year to year. If
for example, you have the same number of livestock in
1. Subtract the depreciation expense from Form one year as the previous year, except for five additional
1040. springing heifers worth $10,000, add this $10,000 to
gross farm income. If you have $20,000 less feed on
2. Subtract expenses that were prepaid for future hand than in the previous year, reduce gross farm
production. income by $20,000.

16
Farm interest expense includes all interest expenses If the operating expense ratio is higher than 70%:
reported on Schedule F.
An operating expense ratio above 70% may reflect
If the operating expense ratio is lower than 70%: high expenses, low income, or both. The largest single
expense on most dairy farms is feed. Make sure that
Low expenses are desirable only if production and feed costs per cwt of milk sold are reasonable. Are
income do not suffer. If expenses are below 70% and other expenses out of line or reported in the wrong
production per cow is above that for similar animals, year?
great!
Another reason for the operating expense ratio to
If expenses are low, income is low, and cash flow is exceed 70% is low gross farm income. Look at the asset
tight, the business may not be large enough to generate turnover ratio, milk sold per worker, and perhaps the
sufficient income or debt may be high. Look first farm’s investment per cow for clues as to whether gross
at other ratios that measure output and volume of farm income is too low or the farm is too small.
business. The business also might have too much debt,
since principal and interest payments are not included
in operating expenses. Check the current ratio and the
debt-to-asset ratio for clues about excessive debt.

17
 Measure 5
Capital Efficiency
Dairy Investment per Cow
Competitive Level:
Less than or equal to $7,000 per cow

Calculation: Example:
Total dairy investment ÷ number of cows (lactating $2,500,000 total dairy investment
and dry) ÷ 340 cows
= $ 7,353 investment per cow

Total dairy investment is the total current market low? Or both? High investment per cow may stem from
value of all dairy assets. These assets should only a number of causes including:
include land used for raising livestock feed, pasture,
livestock buildings, feed storage, manure disposal, 1. High-priced land
livestock machinery, milking equipment, cows and
replacements, and other investments related to the 2. Overbuilt facilities
dairy enterprise.
3. Large number of owned acres per cow
This ratio indicates how efficiently the money on a
dairy farm is invested. Excessive investment per cow 4. New or overpriced machinery
makes receiving a high return on the dollars invested
difficult. If investment per cow is greater than $7,000, 5. New or overpriced facilities
also look at the asset turnover ratio (Measure 6), return
6. Some combination of the above.
on farm assets (Measure 8), and debt per cow (Measure
12). If the business is generating a high return on assets
In Ohio, some farms have land that is now worth much
and is not carrying excessive debt per cow, a higher
more for non-agricultural uses than the agricultural
investment per cow is manageable. If this is not the
value that the owners originally paid. If the farm
case, when investment per cow is high, your dollars are
is profitable and they wish to continue their dairy
not working hard enough to generate dairy income.
business on this land, we suggest assigning a reasonable
agricultural value to the land for these calculations.
If dairy investment is more than $7,000 per cow:
If high-priced land was recently purchased at a
The first question to answer is: What is out of line? Is nonagricultural value and the cows are expected to pay
the investment too high? Is the number of cows too for the land, use the purchase price for the land for this
calculation.

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Lowering investment is difficult. Rationalizing why 4. Leasing assets instead of purchasing them
investment is more than $7,000 per cow is easy;
however, you should address the problem because 5. Selling unproductive assets
your dollars are not working hard enough. The usual
solutions to high investment per cow include: The number of cows is too low if the facilities are not
full. Filling the barns with high-producing cows almost
1. Restraint on future investment always pays. Many competitive farmers fill their
buildings above 100% of capacity.
2. Increasing cow numbers without further
increases in investment Sometimes it is possible to increase cow numbers
by making alternate arrangements for the care and
3. Trading a farm in a high-value area for a larger housing of dry cows and replacement heifers. What
farm in a lower-value area would it take to increase the number of cows on your
farm by 10%?

19
 Measure 6
Capital Efficiency
Asset Turnover Ratio (ATR)
Competitive Level:
Greater than or equal to 0.60

Calculation: Example:
Gross farm income ÷ average total farm assets $1,450,000 gross farm income
÷ $2,400,000 average total farm assets
= 0.60 ATR

The ATR measures the efficiency by which all farm If the asset turnover ratio is below 0.60:
assets generate revenue. The higher the ATR, the more
efficiently assets generate revenue. The first question to answer is: What is out of line?
Are the gross revenues too low, are average total farm
Gross farm income includes cash farm income assets too high, or are both causing problems? On
adjusted for changes in inventories from year to year. If dairy farms, the quantity of milk sold and the milk
for example, you have the same number of livestock in price impact gross revenues most significantly. If milk
one year as the previous year, except for five additional production per cow is normal, herd size is adequate,
springing heifers worth $10,000, add this $10,000 to cull and other sales are normal, and milk prices are not
gross farm income. If you have $20,000 less feed on depressed, then the problem may be with total farm
hand than in the previous year, reduce gross farm assets
income by $20,000. Average total farm assets is the
average of the total farm assets at the beginning and at Many dairy farmers commonly tie up more money in
the end of the year. their farms than is necessary to run them. For example,
due to large investments in land and large equipment,
Farms that should have a higher ATR are those that grain farmers usually have a lower ATR than dairy
rent their facilities or that rent some or all of the land farmers. Some dairy farmers could increase their
that they might use to grow crops. Farms with greater net incomes and their ATR by reducing the acreage
investments in land or very expensive land and/or of crops they raise and better managing the dairy
facilities usually have a lower ATR. It is up to the enterprise. Building new facilities, such as parlors larger
individual dairy business to determine if the return than herd size dictates, can cause low ATR. Once built,
the business is generating is acceptable relative to the only generating more income relative to the investment
investment in these assets. will change the ATR.

20
Another factor that can cause a low ATR is high- If asset levels are reasonable (see Measure 5, dairy
priced land. The value of some dairy farmers’ land has investment per cow), production issues may be causing
increased significantly as a result of urban and other a lower ATR. Many competitive farmers adopt new
development pressures. Higher land values reduce management practices, overfill their facilities, and milk
ATR. If the cows are not being asked to pay for the more than two times per day to reap the most profit
high-priced land (the land was purchased before land from their investments.
prices increased), the dairy operator may be satisfied
with a lower ATR as long as the farm is profitable and FINPACK uses a different method of computing ATR
meeting other goals. than the New York Farm Business Summary (NYFBS).
Both methods are acceptable, but they give different
Most people do not like to move their businesses. This results. The NYFBS uses the gross revenue approach
reluctance, along with the desire to hold on to the based on gross farm income as shown in the previous
property until the price goes higher, causes some farm example. FINPACK uses the value of farm production
businesses to stay on high-value farms when perhaps method, which results in lower ATR. FINPACK users
they should not. If the farm family has adequate who want to compare with this measure should
income to live on and the land is appreciating enough calculate their ATR manually using the formula
to justify continued ownership, then a low ATR may provided in this section.
be acceptable. However, a business struggling to pay
the bills and provide for family living should strongly
consider cashing in or trading the farm.

21
 Measure 7
Profitability
Net Farm Income (NFI)
Competitive Level:
At least $130,000 per owner/operator family

Calculation: Example:
(Cash receipts $ 1,390,000 cash receipts
± inventory change + $ 60,000 inventory change
- expenses - $ 1,088,000 expenses
- depreciation) - $ 50,000 depreciation
÷ number of owner/operator families = $ 312,000 NFI

÷ 2 owner/operator families
= $ 156,000 NFI per family

The NFI is one of the best measures of how a dairy Inventory change requires comparing inventory at the
farm is doing. It typically represents the return to beginning and end of the year. Inventory items include
labor and management for the owner/operator. The grain, feed, livestock, prepaid expenses, and accounts
competitive level of $130,000 per owner/operator receivable and payable. An item’s inventory change
family does not mean that the family will withdraw equals the item’s ending inventory value minus its
$130,000 from the business for family living expenses. beginning inventory value.
Part of the NFI will be withdrawn for reasonable
family living and retirement savings. The NFI must Inventory increases for grain, feed, livestock, and
also be used for making principal payments on loans, prepaid expenses are added to income while inventory
paying taxes, and reinvesting in the business. decreases are subtracted from income. If accounts
payable increase, the amount of the increase is
Calculating NFI requires working with a year’s receipts, subtracted from income. If accounts payable decrease,
expenses, inventories, and depreciation. Receipts, the amount of the decrease is added to income. If
expenses, and depreciation can be obtained from the accounts receivable increase, the increase is added to
business’s tax return. These cash-based figures must income, but a decrease is subtracted from income.
be adjusted to represent all the income generated Computer programs, such as FINAN, or paper systems,
and all of the expenses that were incurred for the such as the Agricultural Financial Reporting and
production in the year being analyzed. If the farm uses Analysis, are helpful for calculating NFI.
an accrual accounting system, these adjustments are
not necessary.

22
For a business to be competitive, its NFI must, in most If net farm income is below the
years, considerably exceed the amount needed for a
competitive level:
good family living. In years when it is not, only the
most urgent obligations are met. Most competitive Having low farm income may be a result of:
operators routinely reinvest in the business,
maintaining and upgrading facilities to increase 1. Productivity problems — per cow returns are
efficiency. However, diversifying into savings and off- low
farm investments are also good strategies to consider.
2. Size problems — the farm does not have
The NFI of the top 10% of farms in the New York enough cows
Dairy Farm Business Summary in 2005 was $648,814
per farm. However, these top farms had an average of 3. High debt per cow (Measure 12)
1.91 owner/operators, which leads to a NFI of $339,693
per owner/operator (family). Average herd size was 4. Expenses are too high (Measures 2, 3, and 4).
730 cows. Personal withdrawals were approximately
$176,000 per farm or $93,000 per owner/operator; If you are not meeting your income goals,
thus, the remaining NFI for these top farms was consider these actions:
approximately $473,000 per farm or $249,000 per
1. Increase returns per cow. You can accomplish
owner/operator. Farms with that much surplus
this by reducing costs per cow, especially feed
income have a tremendous advantage in positioning
costs, or increasing production per cow.
themselves to become even more competitive.
2. Sell off under-used assets and pay down debt.

3. Expand the number of cows, if you are in the

financial and managerial position to do so.

4. Find lower-cost ways of running the business.

Off-Farm Income
Obtaining off-farm employment may increase family
income, but it does not increase NFI. While it may
provide a temporary fix, it does not address the
underlying reasons NFI is not satisfactory.

23
 Measure 8
Profitability
Rate of Return on Farm Assets (ROA)
Competitive Level:
Greater than loan interest rates

Calculation: Example:
(Net farm income + farm interest expense $ 312,000 net farm income
- value of operator’s labor and management) + $ 52,000 interest expense
÷ average total farm assets x 100 - $ 150,000 value of operators’ labor and
management
= $ 214,000 return to assets

÷ $ 2,400,000 average total farm assets

= 0.089

x 100
= 8.9% ROA

The ROA is useful for determining what the assets Factors affecting rate of return on farm assets:
invested in your operation earned. The higher the
ROA, the more profitable the farming operation. If 1. How assets are valued
you use current market values to determine the worth
of your assets, you can use the ROA to compare your 2. Profitability of the farm business
earnings to those of other businesses for the same time
period. The ROA also represents the opportunity cost 3. Level of owner withdrawals for unpaid labor
of having your assets invested in the dairy business and management
as opposed to investing in another business or other
investment opportunity that might generate a higher 4. Amount of unproductive or marginally
or lower return. productive assets

See Measure 7 for instructions on calculating net farm 5. Whether assets are owned or leased.
income and #3 on page 25 for calculating the value of
the operator’s labor and management.

24
Let’s discuss these five factors in more detail: 3. In Ohio State University enterprise budgets,
the value of owner withdrawals for unpaid
1. You may use either a cost basis or market basis labor and management is budgeted at $12.00/
balance sheet to compare the performance of hour, plus 5% of the gross dairy income as
your business from year to year. Most farmers a management charge. The ROA may be
and lenders use a market value balance sheet. overstated if owner withdrawals are lower
If you use a market value balance sheet, you than this, perhaps supplemented by off-farm
should hold the values of your intermediate income. Farms set up as corporations would
and long-term assets constant from year not subtract a labor and management charge
to year to eliminate the impact of simply because these are already deducted from net
changing asset values. Using a cost basis farm income as salaries.
measures the performance of your farm,
unaffected by changing asset values, as well 4. If a business has a large investment in
as the return on dollars invested. However, a unnecessary and/or unproductive assets,
ROA calculated on a cost basis is difficult to ROA may be low. In these situations, the
compare with the ROA of other businesses. farm manager needs to inventory these assets
carefully and determine if the business could
Because farm interest expenses are added to be more profitable if the dollars those assets
net farm income, rate of return on farm assets represent were reinvested in other ways.
is not affected by level of debt or how debt is
structured in the farm business. Thus, you can 5. Farms leasing/renting the farm and/or other
fairly compare actual business performance of major assets may show a higher ROA; however,
both high- and low-debt operations. they will have higher operating expense ratios.

2. Return on assets will decline during years of The New York Farm Business Summary also
declining profitability. If profitability is always deducts a charge for other unpaid labor
low, then the farm manager must look at ways from net farm income in addition to unpaid
to increase profitability. The ROA should be operator labor. However, unless a dairy
higher than the interest rate on borrowed operation has large amounts of unpaid labor,
money. If interest rates are higher, then other this deduction will not significantly affect the
parts of the business are subsidizing the resulting ROA calculation.
interest payments for any new or existing debt.
It is not unusual for other parts of the farm
operation to subsidize land investments, as
land typically has a low rate of return.

25
 Measure 9
Liquidity
Current Ratio and Working Capital
Competitive Level:
Current ratio (CR) = 1.5 to 2.5
Working capital (WC) is positive and stable

Calculation: Example:
Current ratio Current ratio:
= current farm assets $ 300,000 current assets
÷ current farm liabilities ÷ $ 173,000 current liabilities
= 1.73
Working capital
= current farm assets Working capital:
– current farm liabilities $ 300,000 current assets
– $ 173,000 current liabilities
= $ 127,000

Liquidity is a measure of the farm business’ ability to Current liabilities are financial responsibilities that will
pay obligations due in the coming year from the cash fall due within one year of the date of the balance sheet
on hand and assets that can easily be turned into cash. (e.g., accounts payable, operating loans, the principal
Liquidity is often measured using the current ratio. portion of scheduled loan payments, and accrued
This ratio is an indicator of the ability of the current expenses).
farm assets, if liquidated, to cover current liabilities. A
current ratio of 1.5 indicates that there are $1.50 worth A farm business must be able to pay its current
of current assets for every dollar of current liabilities. obligations and have a cushion for unexpected cash
The higher the ratio, the greater the liquidity. The ratio shortfalls. Cash shortfalls may occur because of disease
is also an important indicator of short-term financial outbreaks, lower than expected milk production, lower
viability. Another measure of the farm’s liquidity is milk prices, higher input prices, or a combination of
working capital. Working capital is the difference these factors. A current ratio above 1.0 indicates that a
between the value of the farm’s current assets and farm has more current assets than current liabilities. A
current liabilities. competitive dairy farm must pay its bills and keep its
bank obligations up-to-date.
Current assets normally are converted to cash or can
easily be converted to cash during the year (e.g., cash,
stocks, bonds, feeder livestock, accounts receivable,
prepaid expenses, and inventories such as feed and
supplies.)

26
If the current ratio is low: If the current ratio is high:
A persistently low current ratio indicates a major cash High current ratios indicate surplus cash. Current
flow problem. Strategies to improve the farm’s current assets usually generate lower returns than other assets.
ratio include: If your current ratio is high, consider investing in assets
with higher returns.
1. Refinancing existing debt with longer
repayment terms Working Capital
2. Selling nonessential intermediate or long- Working capital is another way to evaluate the farm’s
term assets (e.g., machinery and investments). liquidity and is a measure of the margin of safety in
Use proceeds to reduce debt or improve the dollars, rather than as a ratio, of the farm’s ability to
efficiency of the dairy business. meet short-term liabilities. The amount of working
capital that is adequate is dependent upon the size
3. Increasing the farm’s revenue or decreasing and scope of the farm business. However, a common
expenses, focusing on profitability recommendation for farms is 25% of expenses. To
reach this figure, many farms combine both their
A low current ratio may be the result of a lender working capital and access to a line of credit.
extending non-mortgage credit as a current liability.
On some farms, large pieces of equipment, such as The farms combining their working capital and a line
large balers, choppers, or combines, are financed of credit may experience a low current ratio since
for three years or less. This strategy results in ratios non-mortgage credit is classified as a current liability.
substantially lower than 1.0 for some farmers. Cash This will result in ratios substantially lower than 1.0
flow is typically very tight. This is not problematic for some farmers when the line of credit is in use. This
as long as the farm is profitable enough to make the is not problematic as long as the business is profitable
payments, meet their other financial obligations, and and the lender continues to extend credit.
the lender continues to extend credit.

Extending non-mortgage credit gives the lender more

control over the loan — and the farm. These loans
usually are reviewed and renewed at least annually.
This large line of credit causes some farmers problems
when they have bad years, and their lenders will not
extend additional credit. Also, other lenders may
consider the farm a high risk because of its poor
current ratio. A low current ratio is usually a minor
problem when the farm is profitable and the debt-to-
asset ratio is well below 40% (Measure 11). However,
this is not a long-term answer but rather a short-term
fix.

27
 Measure 10
Repayment Schedule
Scheduled Debt Payment
Competitive Level:
A. Less than or equal to 15% of gross receipts
B. Less than $500 per cow

Calculation: Example for A:

A. ((Total annual scheduled principal payments $ 158,250 scheduled principal payments
+ total annual scheduled interest payments + $ 52,000 scheduled interest payments
+ total scheduled capital lease payments) + -0- capital lease payments
÷ gross farm receipts) x 100 = $ 210,250 total debt payments

B. (Total annual scheduled principal payments ÷ $ 1,450,000 gross farm income

+ total annual scheduled interest payments
+ total scheduled capital lease payments) = 0.145
÷ number of cows (lactating and dry) x 100
= 14.5 % of gross receipts

Almost all businesses manage debt. Scheduled annual lease payments. This leaves no more than 15% of gross
debt payments as a percentage of gross farm receipts income available to pay taxes and to provide operator
is a good measure of competitiveness. Some debt can income, operator retirement investment, and dollars
allow a business to take advantage of opportunities for reinvestment back into the business or investment
that enhance profitability. Too many scheduled off the farm.
principal, interest, and capital lease payments seriously
affect the ability of a business to meet cash obligations, Total scheduled principal and interest payments
have enough left to provide desired operator income, used in this calculation do not typically include
and reinvest in the business. accounts payable within the next 30 days. Other open
accounts that are kept current even if the payment
If the operating expense ratio (Measure 4) which is due in more than 30 days, such as an annual land
measures how much of the gross farm income is rent payment, would also not be included. However,
committed to paying operating expenses is 70%, accounts payable must be considered if they are open
and the scheduled debt payment is 15%, then 85% and balances are building up because the business is
of the farm’s gross income is committed to paying unwilling or unable to pay them. How will the farm
operating expenses, principal, interest, and capital pay these balances?

28
One option is to commit to paying them over the If the scheduled annual debt payment is too high:
next 12 months on a self-imposed payment plan. The
other is to amortize the accounts payable into one When scheduled debt payments are too high and
or more longer-term notes with scheduled principal cause difficulties in the farm business, a manager must
and interest payments. If the farm must follow this first determine why they are too high and causing
strategy, it can allow the farm to pay a lower interest difficulty. Once the cause or causes are determined,
rate than is typically charged on open accounts. then a farm manager must explore options and finally
However, this means the farm has incurred debt for take action. If the business has significant short-term
operating expenses, not debt that helped the farm debt, rescheduling some of that debt over a longer
become more efficient or productive. The farm must (but realistic) term will decrease annual payments. If
carefully evaluate how/why it got into the position of currently available interest rates are lower than those
accruing unpaid balances and determine how it should you are paying, refinancing is also an alternative worth
change the business to minimize the possibility of this investigating.
happening again.
Reducing total debt through sale of unused assets
or carefully planning, controlling, and spreading
Factors affecting scheduled annual debt debt over more cows are also options. However, any
payment: alternative will only be successful if the business is
profitable.
1. Total farm debt
In some cases, when money is borrowed for an
2. How debt is structured (short, intermediate, or
expansion, annual debt payments as a percentage
long term)
of gross receipts decreases even though total debt
3. Interest rates increases.

4. Gross farm receipts.

29
 Measure 11
Solvency
Debt to Asset (D/A) Ratio
Competitive Level:
Less than or equal to 40%

Calculation: Example:
(Total farm debts ÷ total farm assets) x 100 $ 850,000 debt
÷ $ 2,500,000 assets
= 0.34
x 100
= 34% D/A

Solvency is a measure of the ability of a business, at a A low D/A ratio is only one indication of the financial
point in time, to meet all debt obligations following the condition of a business. When evaluating the
sale of all assets. This is measured by the D/A ratio. The D/A ratio of a business, a good business manager must
D/A ratio increases as the business incurs greater levels also look at the liquidity of the business, its ability to
of debt and decreases as debt is paid off. A business meet cash obligations (Measure 9), and its profitability
with little debt has a D/A ratio close to zero. (Measures 7 and 8).

The D/A ratios will vary through the normal life The D/A ratio looks at the total debt of the operation.
of a business. Higher ratios are common in new It does not evaluate whether it is short, intermediate,
and expanding businesses — and often approach or long-term debt. The type and mix of loans as well
financially stressful levels. Debt levels may reach 60% as interest rates will influence profitability and cash
or more during some expansions — if and when a flow. Shorter-term loans will have higher payments
lender is willing to accept that level of risk and work compared to the same amount of dollars financed
with the farm. High D/A ratios are acceptable for over longer repayment terms. Trying to repay debt too
limited periods of time when plans and projections quickly can put a farm into severe cash flow difficulties.
indicate that the profitable business will quickly
generate funds to pay down debt and bring the ratio
below the competitive level.

30
Financing over long repayment periods causes the farm A business may have little debt but be unprofitable
to pay more in interest charges. Also look at repayment and unable to generate the cash to meet all obligations.
schedule (Measure 10) and debt per cow (Measure 12) If that is the case, the other 14 measures may help
when evaluating a farm’s debt. determine why the business is not profitable.

D/A ratio Financial position of business

< 40% Strong
40 to 70% Possibly stressed
> 70% Very stressed

31
 Measure 12
Solvency
Debt per Cow
Competitive Level:

Less than $2,500 per cow

Less than $3,500 per cow during an expansion

Calculation: Example:
Total farm debt $850,000 debt
÷ (lactating cows + dry cows) ÷ 340 cows (280 lactating + 60 dry)
= $ 2,500 debt per cow

Another way of looking at the ability of a dairy farm to 3. Increasing net income per cow and paying
meet its debt obligations is by looking at the total level down debt
of debt per cow. While the debt to asset ratio measures
the overall debt position of the business, the debt per 4. Withdrawing less from the farm business for
cow indicates how a manager would repay the debt. As family living and paying down debt, if family
the profit center of a dairy operation, cows generate the withdrawals were unreasonably high.
money needed to make both the principal and interest
payments. If debt per cow is too low:

If debt per cow is too high: If a business has a very low debt per cow and is not
highly profitable, the management team should
When a business has debt per cow levels significantly carefully assess the operation and consider if moderate
higher than $2,500, it may experience difficulty investments could increase efficiency and profitability.
meeting all principal and interest payments. Solutions
to this problem could include:

1. Selling any unproductive assets and paying

down debt

2. Increasing the number of cows with little

additional debt

32
Debt per cow as a planning tool:
A manager can quickly estimate the amount of
additional debt possible to take on to finance an
expansion and stay around $3,500 debt per cow.
Further profitability and cash flow analyses must be
done to verify that the business can profitably operate
at this level of debt and reduce total debt per cow
following the expansion.

Example:

Cliff Farms Dairy currently has 200 cows, milking and

dry, with a debt load of $1,800 debt per cow. The dairy
plans to expand to 500 cows and wants to keep total
debt less than $3,000 per cow.

Original 200 cows x ($3,000 - $1,800) $ 240,000

Additional 300 cows x $3,000 + $ 900,000

Total maximum new debt = $1,140,000

This calculation does not indicate if the dairy could

expand profitably and pay back principal and interest
at this level of debt. Further projections must be
completed.

33
 Measure 13
Mission Statement
Competitive Level:
Management team members agree on why they are in business.

Example:
“Our mission is to produce and market high-quality milk in sufficient quantity to
provide a good standard of living for our family and our employees. The business
should be profitable enough to provide above-average compensation for employees and
long-term financial security for our families.”

The mission statement is an important tool for Steps in Developing a Mission Statement
all dairy farms. Farms that are able to clearly
communicate who they are and what they stand for When developing a mission statement, give attention
are often more successful than those that don’t have a to what is important to the business now and in the
true understanding of their focus. One way to develop future. Start by thinking about the following questions:
strong communication lines and a clear understanding
of what the business does is through the process • What is the basic reason for the dairy farm’s
of writing a mission statement. It does not matter existence?
whether the farm business consists of two people or 50, • How does it serve the family and the
all involved must have a clear understanding of what community?
the business does and why they do it in order to move • Why is it unique?
the business in the desired direction. • What are the farm’s strengths?

A mission statement is a short and concise action plan Think about the future of the farm business, family,
based on the things you do each day. It explains why standard of living, leisure time with family, duration of
you are in business and what you want to accomplish. farm business, passing the farm to the next generation,
It provides direction to develop goals and future and retirement. Be sure to involve family members and
plans. This statement is a reflection of the underlying employees in the process.
values, goals, and purposes of the farm and of the
management team. The mission statement should be
communicated and remembered.

34
It is important that others involved in the farm type it, frame it, and hang it in the office, milking
operation have opportunity to provide input. This will parlor, employee break room, or where it can be viewed
provide a more truthful state­ment of what the farm by managers, employees, and family members.
business does and what it values. This approach also
provides for greater buy-in and acceptance by those The value of a mission statement comes from its active
involved in the business. Refer to Appendix C for a use. Use it to guide the goal-setting process and when
worksheet to help you and your employees start the making decisions. Successful businesses are built on
brainstorming process and for additional examples of strong foun­dations. Taking the time to develop a
mission statements. meaningful mission statement will provide your farm
business with the foundation it needs to be successful
Second, think broadly and write down ideas as they today and into the future. Periodically review your
come to you and do not limit or prioritize your ideas. mission statement as your business grows and changes.
Share your ideas with others involved in the farm.
For more information and background for developing
Third, start thinking more specifically, maybe adding a mission statement, see the Ohio State University
more notes, and begin to develop draft forms of the Extension fact sheet Develop a Useful Mission Statement
mission statement. Do not rush the process. Finally, for Your Agricultural Business at ohioline.osu.edu /anr-
compile the notes and drafts to write the mission fact/pdf/3609.pdf.
statement. Once the mission statement is completed,

35
 Measure 14
Maintain Family’s
Standard of Living
Competitive Level:
A. Expand herd 60% every 10 years
B. Family living costs equal 10 to 15% of gross farm income

Example:
A. 340 cows in 2008 B. $ 300,000 gross farm income
÷ 200 cows in 1998 x 0.15
= 1.70, a 70% increase in herd size = $ 45,000 family living

Families usually wish to maintain or increase their profit margins. To meet future family living demands,
standard of living over time. Because of inflation, farms will continue to grow in size and scale.
farm income must increase or the standard of living
falls. Above-average dairy farmers who have improved David Kohl, Virginia Cooperative Extension, lists
management, adopted technology, and increased some rules of thumb for family living costs: Family
production per cow have only maintained or slightly living costs generally account for between 10 to 15%
increased income per dairy cow over time. Farm of gross farm revenue. Farm couples over the age of
families should estimate what their desired standard of 65 may require a higher percentage to meet medical
living is for each year and then develop a plan to make costs and retirement obligations. Generally, it takes at
sure that farm revenue increases at a rate to meet these least $300,000 of gross revenue to generate $50,000 of
goals. family living income.

Determine How Much Family Income Assume it takes 70% of revenue (operating expense
ratio, Measure 4) to cover out-of-pocket costs. This
Is Needed leaves 30% for debt service, capital replacement,
Farm families often underestimate requirements growth, and family living costs. The $300,000 gross
for family living expenses. As additional operators revenue example would net $90,000. If $50,000 is
are brought into the farm business, a realistic used for family living, $40,000 would remain for debt
estimate must be considered for additional family payments and investment/reinvestment. Also, note that
living expenses. Family living expense requirements farm businesses will need to grow 5 to 7% per year just
are driving the size requirements of commodity to maintain that level of income.
agriculture. Commodity production assumes smaller

36
Increasing Income Through Herd Size Other Options to Increase Income
Based on the experience of the last 40 years, a dairy Farm families who have neither the desire nor
farm family with better-than-average management the resources to expand their herds have several
must increase the number of dairy cows on the farm alternatives. First, family members should conduct a
by approximately 60% every 10 years to maintain their benchmark analysis on their farm’s financial records
standard of living. Families should increase herd size to determine if there are ways to increase the farm’s
more rapidly if increasing their standard of living is a efficiencies when compared to established benchmarks.
high priority. If current trends continue, a dairy farm Increasing efficiency can increase revenue.
family with 100 cows in 2007 will need 160 cows by the
year 2017 to enjoy an equivalent standard of living. The family can diversify the operation to include more
than dairy cattle or look at ways of direct marketing to
Many dairy producers have neither the desire nor consumers through value-added products. The family
the resources to grow 60% every 10 years. Even when may also retire existing debt and/or invest in financial
they have the desire, limited resources make a 60% assets, such as stocks, bonds, and mutual funds.
growth rate every 10 years difficult for an average Retiring debt will reduce the interest expenses of the
dairy producer to achieve. Producers who will not farm in the future. Investments in financial assets will
or cannot achieve a 60% growth rate may operate as provide returns, which can provide money for family
dairy producers and support a family for many years. living in future years. Another alternative is to seek off-
However, because of inflation, they should expect a farm employment. Cash flow projections will indicate
declining standard of living over time. whether or not these options will provide enough
funds for family living.

37
 Measure 15
Motivated Labor Force
As measured by:
Managers use personnel management practices that lead to well-trained, enthusiastic, empowered family
members and employees who share a commitment to the mission and goals of the business.

Operating a highly competitive dairy farm requires the Competitive operations understand that personnel
talents of many people. The owners, managers, and management is a major key to profitability.
employees of the dairy operation all possess individual An employee handbook is an excellent way to
strengths and weaknesses. Each member should take communicate job descriptions, expectations, and
time to analyze his or her own skills to determine how compensation. The manager should develop strategies
he or she can best fit into the farm operation. A key to to reward and motivate employees. Some of these
success is being able to identify and to capitalize on the strategies could include verbal praise, annual salary
individual strengths of employees. increases, bonuses, and extra vacation days. Farm
business and staff meetings are also good avenues to
Personnel managers should take time to examine the keep communication channels open with employees.
five functions of management — planning, organizing,
staffing, directing, and controlling. They also need to Dairy managers should look for opportunities
develop a human resource plan that is consistent with to improve their management skills. A variety of
the farm’s mission and goals. This plan will serve as a management information resources and courses are
guide as employees are hired, managed, and trained. provided by Extension. Resources are also available
for managers hiring and managing Hispanic labor.
Motivated employees are often more productive. Dr. Managers should contact their local county Extension
Bernie Erven, Ohio State University professor emeritus, office to learn how Extension can help them manage
cited an employee paradigm that states: “You can buy their employees more effectively.
people’s time: you can buy their physical presence at
a given place, you can even buy a measured number
of their skilled muscular motions per hour. But you
cannot buy the devotion of their hearts, minds, or
souls. You must earn these.”

38
Examples of Ways to Improve Personnel
Management:
• Assess your personnel needs, supervisory skills, • Develop an employee training and orientation
and working conditions. program.

• Improve your communication skills. • Develop and conduct advanced training

programs for current employees.
• Take a conversational Spanish speaking course
if employing Hispanic workers. • Conduct farm business meetings for
employees.
• Develop job descriptions.
• Train and reward employees.
• Match workers with job descriptions.
• Schedule work effectively.
• Hire employees who fit job descriptions.
• Coach your employees.
• Develop and distribute an employee
handbook. • Evaluate employee performance and provide
feedback.

39
 The Fork in the Road
for Dairy Farms
Dairy managers who desire to stay in the dairy If you become complacent, the industry will pass you
business for more than 20 years must be competitive. by, and you will lose your competitive advantage. If you
Competitive dairy producers should plan on exceeding are winding down the dairy enterprise and planning to
most of the 15 measures in five years. Unprofitability, retire, however, this may be an acceptable course.
as a result of not meeting these measures, may force a
dairy operation out of business. The strategies you use On the other hand, a taste of success may leave you
to increase your competitiveness will depend on your hungering for more and more — and right away! Be
current situation. careful not to move too quickly, stretch yourself too
thin, or rashly adopt a new and unproven technology.
Managers Who Already Are Competitive Unexpected setbacks may cause you to lose everything.

Managers of most dairy farms are already doing many Dairy farming is a dynamic business. To stay
things right. However, to remain competitive, you will competitive over the long haul, you have to continue
have to continue to improve your management skills, to change and grow as a manager. Continue to learn
adopt new technology, and grow. about management and how to apply the five functions
of management — planning, organizing, staffing,
As you determine the course of your business, directing, and controlling. You also will need to
carefully consider your alternatives. Becoming overly become an expert at creative problem-solving, which
complacent or attempting to implement change too cuts across all five management functions.
rapidly are two pitfalls to avoid as you make important
business decisions.

40
Managers Who Want to Become Addressing the following questions may help you
evaluate your list:
Competitive
If your dairy farm currently is not as competitive as • Does each goal fit with the reason you are in
you would like, we suggest following the five steps business?
outlined in this section. You may be in a position • Is the goal realistic?
where income is modest, resources are available, you • Does the goal take advantage of your strengths
have good management skills, you possess a desire to and opportunities?
improve, and you want to continue operating a dairy • Does the goal address your weaknesses and any
farm long term. If this is the case, it is time for you to factors threatening your business?
make some changes.
Step 4: Prioritize Your Goals
Step 1: Prepare a Written Mission Statement Select one or two goals from your final list as top
Before you do anything, you (and your management priorities. Most small business managers cannot attack
team and employees) need to prepare a written mission more than one or two goals at a time. Pick one that
statement for your farm. You must know why you most of the management team agrees to start working
are in business and what you want to accomplish to on. Consider delegating responsibility for some goals
become competitive. Discuss your mission statement at to others on the farm.
length and revise it until it clearly states why you run a
dairy farm. Step 5: Identify Short-Term Goals
Identify short-term goals to support the top-priority
Step 2: Prepare a Written List of Long-Term Goals long-term goal you have chosen. A series of short-term
Next, your management team should prepare a goals lays the foundation for long-term success.
preliminary list of goals that you believe will make your
operation more competitive. Include more long-term For example, assume that the first long-range goal for
goals on your list than you can possibly accomplish. attention is to:
Make sure you write the goals down. Unwritten goals
“Increase net farm income from the dairy enterprise by
are like uncaught fish — just dreams. If you are better
20% in the next fiscal year.”
at coming up with good ideas than writing them down,
ask your spouse, a key employee, or a member of the
Here are some short-term goals that would help
family to do the writing.
achieve the long-term goal:
Step 3: Share Your Goals and Revise Them • The management team will develop a budget
Share this preliminary list with members of your by January 1 to increase net farm income
family and others involved in the management of the with the accountant taking leadership
business. Involve everyone. This process will require responsibilities.
all involved to listen to each other and compromise.
Others will likely suggest different goals. Be open to • The management team will review
their suggestions and expect them to expand and help performance against budget at the first
improve your preliminary list. Encourage others to meeting of each month.
suggest additional goals or to modify those initially
suggested.

41
 • The manager will find benchmark production Managers Who Do Not Want to Become
and business performance data from similar
Competitive
dairy farms to compare performance at
monthly meetings. Some dairy managers have no plans for making
the operation competitive and, in fact, can afford
Well-written goals are “SMART’ goals: to be noncompetitive. Many of these managers are
in their fifties and sixties and carry little debt. The
S — specific dairy operation may provide livable wages given the
circumstances. Moreover, the manager does not have
M — measurable
children, other relatives, or employees with a desire to
take over the operation. Costs of being noncompetitive
A — attainable
may be low as long as the manager is satisfied with
R — rewarding the income generated by the operation. Managers
in this position should plan on setting funds aside
T — timed for their retirement. Most other managers cannot
afford to remain noncompetitive when means exist
It is clear what is to be done and who will do it, for making the operation more competitive. Younger
progress towards the goal can be measured, it is farmers and struggling farmers who do not become
possible to accomplish the goal, it is beneficial to the more competitive eventually will find themselves in the
business that the goal be accomplished, and there is an previous group as “Managers Who Want to Become
ending point to the goal. SMART goals are more likely Competitive But Cannot.”
to be accomplished and help move the business in the
direction determined by the Mission Statement.

Managers Who Want to Become

Competitive But Cannot
Some farms cannot be competitive because managerial
expertise is low, managers do not have the interest or
ability to improve, the farm has few financial resources,
and/or the operation is labor intensive. If the farm is
not and cannot be profitable, the family should exit
the dairy business before they compromise the equity
they have in the business. Other producers in this
situation may desire to continue dairying but will have
to support the family from non-dairy enterprises.

42
References
Building Your Reputation as an Employer. Bernard L. Farm Family Living Cost Update. Dr. David Kohl,
Erven, Department of Agricultural, Environmental, Virginia Tech, Blacksburg. August 1999.
and Development Economics, The Ohio State
University, Columbus. Farm Personnel Management. North Central Regional
Accessed at: http://www.agecon.purdue.edu/extension/ Extension Publication 329, 1989.
sbpcp/resources/reputation.pdf
Farm Planning Process Model. David Marrison, 2007.
Business Summary: New York State. Cornell University, Extension Fact Sheet 3608. The Ohio State University,
Ithaca, 2005. Columbus.
Table 10, page 16. Average ROA = 6.7%; top 10% = 14% Accessed at: http://ohioagmanager.osu.edu/resources/
(without appreciation). documents/3608WholeFarm.pdf
Table 12, page 17, average CR = 1.85.
Table 13, page 18, average D/A = 0.37, top 10% = 0.38. Farm Size Requirement to Meet Family Living Expenses.
Table 13, page 18, average debt per cow = $2,818; top 10%
Dr. Donald Breece, The Ohio State University. Article
= $2,568.
printed in the Ohio Ag Manager Newsletter, February
Calculated from Table 17, page 21, average capital OER =
75%; top 10% = 71%. 2007.
Tables 17 and 18, pages 20 and 21, average scheduled debt Accessed at: http://ohioagmanager.osu.edu/news/
payment = approximately 12%; top 10% = approximately archive/2007/2-2007.php
10%.
Table 41, page 42, average investment per cow = $7,508; Financial Ratios Used in Financial Management.
top 10% = $6,424. Langemeier, M. 2005. Fact Sheet MF-270, Kansas State
Table 41, page 42, average ATR = 0.60 (including University, Manhattan.
asset appreciation); top 10% = 0.74 (not including asset
appreciation). FINBIN Summary of Minnesota Dairy Farms. Center
Table 43, page 42, average pounds of milk sold per worker for Financial Management, University of Minnesota,
= 956,698; top 10% = 1,132,532. Full-time worker defined as
St. Paul.
230 hours of labor per month (2,760 hours/year).
2002-2006 average ROA = 7.2%; top 20% of farms =
12.2%.
Business Summary: New York State. Cornell University,
Ithaca, 1995. FINPACK User’s Manual. Center for Farm Financial
Table 11, page 13, average CR = 1.64.
Management, University of Minnesota, St. Paul.
Table 39, page 36, average ATR = 0.49; top 10% = 0.60.
Improving Dairy Farm Profitability. David B. Fischer,
Dairy Excel’s 15 Measures of Dairy Farm
University of Illinois, Urbana.
Competitiveness. Polson, Jim; Shoemaker, Dianne; Accessed at http://www.livestocktrail.uiuc.edu/dairynet/
Oelker, Ernie; Schnitkey, Gary. Extension Bulletin 864, paperDisplay.cfm?ContentID=254
1997. The Ohio State University, Columbus.
Increasing the Number of Dairy Cows Needed to Support
Develop a Useful Mission Statement for Your Agricultural a Farm Family. Department of Agricultural Economics,
Business. Woodruff, J. N. 2007. Extension Fact Sheet The Ohio State University, Columbus. April 1995.
3609. The Ohio State University, Columbus. E.S.O. 2214.
Accessed at: ohioline.osu.edu /anr-fact/pdf/3609.pdf.
Interpreting Financial Performance Measures.
Family Business Meetings. Chris Zoller, 2007. Extension Edwards, W. 2005. Extension Fact Sheet C3-56. Iowa
Fact Sheet 3612. The Ohio State University, Columbus. State University, Ames.
Accessed at: http://ohioagmanager.osu.edu/resources/doc
uments/3612FamilyBusinessMtgs.pdf

43
 Labor Management in Agriculture. Gregory Billikopf. Ohio Dairy Enterprise Budgets, 2003. Ohio State
Encina: Regents of the University of California, 2003. University Extension, Columbus.

Large Herd Business Summary: New York State. Cornell Ohio Dairy Enterprise Budgets, 1996. Ohio State
University, Ithaca. 2005. University Extension, Columbus.
Page 18, average debt per cow = $2,901; top 20% = $2,286.
Calculated from data on pages 23 and 24, average Ohio Farm Business Summary, 2005. Ohio State
OER = 77%, top 20% = 71%. University Extension, Columbus.
Page 34, average investment per cow of 74 farms = $7,040;
top 20% = $6,335.
Penn State University Dairy Farm Business Analysis,
2000.
Leading, Motivating, and Evaluating Employees. Bernie Table 3, page 8. Average pounds of milk sold per worker =
Erven, Department of Agricultural, Environmental, 688,776. One worker equivalent equals 60 hours per week.
and Development Economics, The Ohio State
University, Columbus. Positioning Your Dairy Farm Business for a Profitable
Accessed at: http://www.agecon.purdue.edu/extension/ Future — A U.S. Perspective. Terry Smith, University of
sbpcp/resources/Leadingmotivatingevaluating.pdf
Wisconsin, Madison.
Accessed at: http://www.wcds.afns.ualberta.ca/
Managing for Success Workbook. 1995-96. Dairy Excel. proceedings/1996/wcd96135.htm
Ohio State University Extension, Columbus.
Recommendations of the Farm Financial Standards
Northeast Dairy Farm Summary, 2005. Published May Council: Financial Guidelines for Agricultural Producers.
2006. Northeast Farm Credit, Enfield, Connecticut. July 1995.
Table D-1, page 39, top 25% farms, $262, 235 NFI;
$55,963 family living and income taxes withdrawn; average
References for Managing Hispanic Workers. USDA
herd size of 293 cows.
Table D-2, page 40, average debt per cow = $2,543; top Forest Service.
25% = $2,604. Accessed at: http://www.na.fs.fed.us/wihispanic/
Figure 12, page 18, average ROA = 5.4%; top 25% of references_for_managing_hispanic.htm
farms = 10.3% ROA. 2001-05 = 4.8%.

44
Appendix A: Feed Cost and Quantity Calculations

Calculating Total Homegrown Feed Cost

To arrive at total feed cost per hundredweight (cwt) of milk, add the cost of purchased feeds fed to the cost of
producing homegrown feeds. Costs of producing homegrown feeds include direct costs, such as seed, fertilizer,
crop chemicals, fuel, and labor, and indirect costs, such as interest, depreciation, taxes, insurance, land rent, etc.
Use the worksheet in this appendix to help calculate total feed costs.

Comparing Your Cost of Producing Feed to Market Price

Divide the total cost of producing each feed fed by the number of tons or bushels produced to arrive at total costs
per unit produced. Compare this average cost to the average market price of the same feed. Can you produce the
feed as cheaply as you can purchase it?

Estimating Quantities of Homegrown Feeds Fed

Name Beginning - Ending
of Feed Inventory + Produced + Purchased - Sold Inventory = Fed
             
             
             
             
             
             
             
             
             

To calculate quantities of homegrown feeds fed, start with the beginning inventory in bushels or tons, add
quantities produced and purchased, subtract quantities sold and ending inventories to arrive at bushels or tons
fed. Keep accurate inventories of feeds on hand at the end of each year. Take a few minutes each day during
harvest to keep track of bushels and tons harvested. Monitor quantities in storage monthly. Use these methods to
calculate quantities fed daily and to calculate the total fed for the year.

45
 Dairy Feed Costs Per Hundredweight of Milk Sold1
Feed Cost Category
Corn Haycrop Other
(including cows, heifers, and Corn Hay Grazing
Silage Silage Feeds
calves)
A. Purchase Price ($/ton)2            
B. Total cost of purchased feeds ($)
Feed crop production costs3
C. Seed (pro-rated)4            
D. Fertilizer            
E. Crop chemicals            
F. Drying costs            
G. Fuel and oil            
H. Repairs            
I. Custom hire            
J. Hired labor            
K. Utilities
L. Interest            
M. Leases, machinery, buildings            
N. Land rent            
O. Taxes            
P. Insurance            
Depreciation of machinery and
Q.            
buildings
R. Miscellaneous costs            
Total cost of feed produced
S.            
(sum of C through R)
Total amount harvested for feed
T.
(tons)3
Feed Crop Production Costs
U.
($/ton) (S/T)3
Comparison of Purchase Price
vs. Feed Crop Production Costs
(A/U)3,5
V. Total feed costs all feeds (sum of totals in rows B and S above)  
W. Average number of cows in herd (milking and dry) for the year  
Y. Hundredweights of milk sold  
  Total feed costs (all feeds) divided by average number of cows in herd (V÷W) 6

  Total feed costs (all feeds) divided by cwt of milk sold (V÷Y)6

46
1
Include all types of feed fed (purchased and raised), including minerals, vitamins, and additives. Use extra
sheets if necessary.
2
Include the purchase price per ton regardless of whether the feed is purchased or grown on the farm.
3
Include only the feed grown on the farm and the costs of producing the feed fed; do not include costs of feed
sold.
4
Pro-rate establishment costs and annual costs of perennial crops over the average life (years) of such crops on
your farm.
5
If this ratio is < 1, then it is more profitable to purchase the feed; if the ratio is > 1, then it is more profitable
to produce it on your farm. This should be generally evaluated over a year rather than within a season due to
seasonal variations. Even with a yearly comparison, growing conditions in a given year can have a large impact
on the comparison. Because of the potential for these variations, decisions about growing vs. purchasing should
be made when the ratio is outside 0.95 to 1.05 for more than one year.
6
These costs per unit need to be evaluated relative to the benchmark based on whether heifers are raised on the
farm or custom raised.

47
 Appendix B: Projected Feed Costs Per Cwt of Milk Sold and
Amount of Feed Needed for Dairy Cattle

Table A. Change in Feed Cost Per Cwt of Milk Based on Changes in Prices for Corn and Hay.1

Total Feed Cost Per Cwt of Milk

Corn Price Hay Price Per Ton
Per Bushel $100 $130 $160 $190
$2.50 6.10 6.52 6.94 7.36
$3.00 6.24 6.66 7.08 7.50
$3.50 6.39 6.81 7.22 7.64
$4.00 6.53 6.95 7.37 7.79
1
Calculated primarily using numbers in the Ohio Dairy Enterprise Budgets, 2003, Ohio State University
Extension; large breed dairy cow producing 24,000 pounds of milk. Appendix B, Table B, shows feeds and
quantities fed.

Table B. Feed Requirements for a Dairy Cow and Replacements (24,000 lb production;
80% corn silage and 20% hay).1

Item Unit For Cows and Replacements

Corn lb 3864
Soybean oil meal lb 3344
Limestone lb 171
Dicalcium phosphate lb 138
Salt lb 145
Bicarbonate lb 50
Magnesium oxide lb 14
Vitamin supplements lb 21
Feed additives lb 174
Hay equivalent2 ton 3.35
Corn silage ton 13.09
Milk replacer lb 15
1
Source: Ohio Dairy Enterprise Budgets, 2003. Ohio State University
Extension.
2
Hay equivalent composed of hay and/or haylage.

48
Table C. Changes in Milking Herd Feed Costs Per Cwt of Milk Sold Based on Changes in Prices for
Corn and Hay.1

Milking Herd Feed Cost Per Cwt

Hay Price Per Ton
Corn Price Per Bushel $100 $130 $160 $190
$2.50 4.39 4.53 4.66 4.79
$3.00 4.51 4.64 4.77 4.91
$3.50 4.63 4.76 4.89 5.02
$4.00 4.75 4.88 5.01 5.14
1
Based on a balanced ration for a cow producing 80 lb/day of milk. Appendix B, Table D, shows the individual
feed ingredients in the ration.

Table D. Feed Required Each Day for a Cow Producing 80 lb/day of Milk.1

Item Amount (lb/day; as-fed basis)

Corn 10.5
Soybean oil meal 10.5
Limestone 0.45
Dicalcium phosphate 0.40
Salt 0.25
Bicarbonate 0.15
Magnesium oxide 0.05
Vitamin supplements 0.05
Feed additives 0.60
Hay equivalent2 7.0
Corn silage 68.0
1
Taken partially from: Ohio Dairy Enterprise Budgets, 2003. Ohio State
University Extension.
2
Hay equivalent composed of hay and/or haylage.

49
 Appendix C: Mission Statement Worksheet and Examples of
Mission Statements

Mission Statement Worksheet

The questions listed here should be answered individually and then those involved in the business should be
brought together to answer them collectively. Your answers don’t have to be confined to one page. A mission
statement can be developed from the group’s answers.

1. Why do I farm?

2. What do we do? What is our purpose?

3. Who are our customers? What do they want?

4. How do we accomplish our purpose? What practices do we use and who is responsible for what?

5. What beliefs and values do we hold?

50
Sample Mission Statements

Produce high-quality milk at the most economical cost. Provide good animal
care and protect our environment. Offer a rewarding career, competitive wages,
and a comfortable quality of life for our family.

Produce and market a high volume of quality milk for the consumer which
will provide a good standard of living and a comfortable retirement, ample
time for recreation and personal growth, family member involvement, and
recognition for accomplishments. The farm will be labor efficient, have a good
work environment, and express a high degree of pride.

We are a family-owned and -operated dairy farm and plan to ensure that
opportunity to the next generation. We value rural life and are committed to
keeping our rural community vital. We strive to:

• Make efficient use of inputs.

• Produce a high-quality commodity for the end user.
• Utilize good animal care practices.
• Maintain sound environmental stewardship practices.

51
 Dairy Excel’s
15 Measures
of Dairy Farm
Competitiveness

http://dairy.osu.edu

52