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Download: Texas Dairy Farm Diversification Guide
When milk prices dip, a second source of income can keep the lights on. This explainer and build-your-own checklist is not a downloadable guide, and it avoids promising returns, since the right choice depends on your land, labor and goals.
Why diversify a dairy?
Milk is a commodity, and its price moves in ways a single dairy cannot control. Additional income from other products or services can smooth the ride.
Diversification can also use idle land, buildings and skills. Around Stephenville, farmers might consider forage sales, custom work, direct sales or events.
It is not a rescue plan for a failing dairy, and it should not drain the main business.
What options might fit?
Think broadly, then narrow. Common categories include the following:
Rank each idea by three questions: does it use something you already have, does it fit your skills and does it have a clear customer? Ideas that pass all three move to the top of the list.
Talk with spouse and family before you commit. A new venture changes everyone's schedule, and surprises create friction. Agree who does what and what you will stop doing to make room.
- Selling forage, hay or silage to neighbors
- Custom harvesting, hauling or manure services
- Direct sales of milk, cheese or meat
- Agritourism and events
- Leasing land, buildings or equipment
- Renewable energy leases or on-farm power
How do you test an idea?
Start small. Try a pilot before building anything big. Ask what problem you are solving, who the customer is and what it will take in time and money.
Run the numbers with your accountant, including labor and any equipment. Use conservative assumptions and ask what happens if sales are half of what you hoped. The farm money guide covers the basics of planning.
Keep separate books for the new venture, so you can see whether it earns its keep. Mixed books hide losses and make decisions harder.
What rules and permits might apply?
Each idea comes with rules. Food products need licensing, events need insurance and zoning approval and some energy projects need contracts you should have a lawyer review. Start with the Texas Department of Agriculture and your county.
For federal small business support, see the SBA and USDA Rural Development, and check what is available now. Also ask your tax professional about how new income is taxed, with the general guidance at the IRS.
Check your lease and loan terms. Landlords and lenders can restrict new uses of farmland and buildings, and finding out after you invest is expensive.
How do you pay for it?
Funding options include savings, bank loans and agency programs. Compare lenders such as local banks, credit unions and Farm Credit associations, and look at FSA loan information for programs with their own eligibility. Terms change, so check current ones.
Talk with a licensed professional about how a new venture affects your existing loans. Some loan agreements restrict new debt or changes of use.
Think about equipment you already own. A trailer, skid steer or hay baler might earn extra income through custom work, and the tractor and equipment guide can help you weigh costs.
How do you protect your main business?
Keep the dairy first. Set limits on time and money for the new project and track them separately. A side project that eats the milking schedule is a bad trade.
Watch risk too. New ventures bring new liability, so review insurance, and see the safety guidance at this farm safety guide. Herd care should never slip, and the dairy herd guide is a good reminder.
Review the venture quarterly. If it is not meeting your goals after a fair trial, be willing to stop.
What should you do next?
Write a one-page plan for your top two ideas, talk with people who do them already and call Texas A&M AgriLife Extension to learn about programs.
For a laugh while you plan, farm.FM has dairy stories and satire and farm economics stories, and a farm.FM story on farm side income fits this topic.
Revisit your list each year. An idea that did not make sense this year might fit once the kids are grown or a lease ends. Keep the list alive.
Sources and further reading
- Texas Department of Agriculture: state agriculture agency
- SBA: small business loans and counseling
- USDA Rural Development: rural business and community programs
- IRS: federal tax guidance
- Farm Credit: cooperative agricultural lending network
- FSA Farm Loans: FSA direct, guaranteed, microloan and emergency loan information
Ask locally: Talk with your accountant, your lender and a Texas A&M AgriLife Extension business specialist before you invest.