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Managerial and Financial Implications of Major Dairy Farm Expansions in Michigan and Wisconsin¹

Department of Agricultural Economics Michigan State University East Lansing, MI 48824

Corresponding author:
C. A. Wolf; e-mail:
wolfch{at}msu.edu.

This study examines the experiences and results of major dairy farm expansions in Michigan and Wisconsin. Twenty dairy farms that had one-time herd size increases of at least 20% between 1988 and 1998 were selected, surveyed, interviewed, and analyzed. A case study format reveals individual experiences and problem solutions. On average, studied dairy farms increased herd size from 296 to 569 cows. The most commonly cited reason for expansion was increased profits. On average, net farm income and return to operator management and capital improved following expansion. The most profitable expansions were highly correlated with modernizing facilities. In addition, a decline in return on assets was, in several cases, due to taking on too many new partners relative to the increase in herd size. Dairy farms were able to increase milk production and experienced a significant decrease in labor and management expense per hundredweight of milk produced through expansion. Outsourcing and the use of consultants increased with expansion. Public relations problems were not substantial impediments for producers who took a proactive approach. Reflecting on the expansion experience, managers indicated that human resource, financial, operations, herd management, and strategic management skills were the most important skills to achieve a successful expansion.

Abbreviation key: D/A = debt-to-asset ratio, FTE = full-time equivalent, NFI = net farm income, RHA = rolling herd average, ROA = rate of return on assets, ROCM = return on operator capital and management

Key Words: expansion • financial management • profitability • labor efficiency

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