Wednesday, July 6, 2022

Goat farming picking up pace

Dairy goats were once seen as something of a fringe farming activity, but today deliver appealing returns to farmers belonging to the Dairy Goat Co-operative. Richard Rennie finds out what has made this small co-op successful.

While Waikato is renowned for its dairying heritage, it is milk of a different sort capturing interest there, and market value abroad.

Hamilton based Dairy Goat Co-operative (DGC) is lifting its profile locally, intent on building its supplier base as its premium infant milk formula gains even greater traction.

A softly, softly approach by the co-op over the past 26 years has it claiming the coveted infant formula niche in over 20 countries globally, selling over $100 million of product a year.

“We have tended to play the long game in most aspects of the business, building supply, relationships and brand over the 26 years we have existed,” deputy chief executive Tony Giles told delegates at a KPMG agribusiness seminar last week.

Giles freely acknowledges the co-op chose a low profile approach as it worked establishing export beachheads through Asia. Its initial export market was Taiwan, pushing growth from the 1980s when the co-op sprang from the boom and bust of the dairy goat industry with only 20 suppliers remaining out of 150.

The strong Taiwanese ties remain today, but such was the success their executives soon realised the need to diversify. It is something Giles cautioned exporters eyeing prospects in China and the inevitable lure one large market provides as an outlet for export product.

“It is simply a case of not wanting to put all your business in one basket and it was something we realised we were risking back then.”

The company makes no secret about its narrow focus, that being the branded infant formula market. Owning the brand captures more of the value chain, and being market led has reduced the risk of having surplus product. Supplier quotas have ensured supply has adjusted upwards only with demand.

This has ensured less risk of surplus goats’ milk powder, a product with no commodity market and which if held would only weaken the co-op’s selling position.

There is something of a David and Goliath story behind DGC’s latest success which will see it secure a market position in Europe, the home of enormous milk processors including Danone and Nestle.

With EU food safety rules not recognising goats’ milk as an approved infant formula, DGC spent millions engaged in equivalence trials to prove it was a suitable formula.

“It sounds bizarre, we had been making it for 20 years and knew it was safe, but the European regulations were written before goats’ milk was known to be a suitable infant formula.”

The scientific proof has been validated and DGC has to wait until next year to see it finally signed into legislation.

“It was quite satisfying for a small co-operative from way down in Hamilton to take on Brussels and convince them.”

Despite macro-economic indicators painting a depressing picture of Europe, there is still a significant level of wealth untouched by recession, with consumers spending on average almost 10 times what Chinese consumers do on food.

Combined with falling birth rates, the region holds strong potential for DGC’s premium product that can retail for twice a typical cow’s milk formula.

“For people who still have jobs, they can be doing as well as ever, maybe even better with lower interest rates. There is still a high level of fundamental wealth in many countries, and they are prepared to spend it to give their kids the best.”

DGC is seeking milk from new suppliers and Giles presented figures that would have most cow farmers at least considering the maths on moving to smaller four legged mammals.

Last season’s payout was $15/kgMS plus a bonus of $2.50/kgMS. That $15 is a target DGC aims to hold firm on and enhance “if at all possible”.

An average goat farm is 600 head on around 40ha, producing 45,000kgMS from a cut and carry system used on 75% of farms.

However, Giles cautions it is not a cheap business to get into, with co-operative shares costing $23/kgMS, and a start up cost of around $4 million not uncommon.

“But this is not just a producer co-operative, but a developer of niche branded exported products.”

So far 10 new producers are signed up for the 2013 season, and another four for the following.

Giles admits he is surprised there has not been as much competition from other companies, but knows it may only be a matter of time before the co-op sees them in the game.

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