WEBVTT 00:00:11.720 --> 00:00:15.060 Breaking free from the chains of the past Where 00:00:15.060 --> 00:00:18.820 truth moves faster than a Holstein calf No law 00:00:18.820 --> 00:00:21.660 waiting on some printed page We're charting new 00:00:21.660 --> 00:00:25.300 ground in the digital age From genomic codes 00:00:25.300 --> 00:00:29.120 to robot facts We cut through the noise, no hold 00:00:29.280 --> 00:00:32.460 them back not your daddy's dairy news tonight 00:00:32.460 --> 00:01:02.899 we're sparking Welcome back to the Bullvine Podcast, 00:01:03.179 --> 00:01:05.040 where we cut through the dairy industry noise 00:01:05.040 --> 00:01:07.319 to get you the insights that actually matter 00:01:07.319 --> 00:01:09.620 for your operation. We aren't here to sell you 00:01:09.620 --> 00:01:11.859 a new additive or, you know, a shiny new piece 00:01:11.859 --> 00:01:14.920 of iron. We are here to look at the numbers. 00:01:15.420 --> 00:01:18.260 the hard numbers that define your livelihood. 00:01:18.620 --> 00:01:21.540 And today, we're diving deep into a feature piece 00:01:21.540 --> 00:01:24.700 about a number that, honestly, it might be quietly 00:01:24.700 --> 00:01:26.760 killing your margins while you're busy delivering 00:01:26.760 --> 00:01:29.599 bottles. Right. We all love the romance of the 00:01:29.599 --> 00:01:31.640 local milk truck, the whole farm -to -table thing, 00:01:31.760 --> 00:01:34.819 but sometimes the spreadsheet tells a very different 00:01:34.819 --> 00:01:37.859 story than the heart. Exactly. We are looking 00:01:37.859 --> 00:01:40.079 at a story coming out of the Isle of Man. It's 00:01:40.079 --> 00:01:43.680 the end of a 75 -year legacy Kuhl's dairy. Now, 00:01:43.739 --> 00:01:45.840 before you panic and think this is another doom 00:01:45.840 --> 00:01:49.200 and gloom bankruptcy story, just stop. It's definitely 00:01:49.200 --> 00:01:51.340 not a bankruptcy story. Not at all. No, it is 00:01:51.340 --> 00:01:53.719 not. This is a story about choice. It's a story 00:01:53.719 --> 00:01:56.640 about math. And ultimately, it is a story about 00:01:56.640 --> 00:01:59.060 knowing exactly when to quit the retail game 00:01:59.060 --> 00:02:01.540 to, well, to save the farm itself. Which is a 00:02:01.540 --> 00:02:04.519 decision that I think a lot of producers, maybe 00:02:04.519 --> 00:02:06.739 most producers, really struggle with. We are 00:02:06.739 --> 00:02:09.319 wired to persevere, right? Absolutely. We're 00:02:09.319 --> 00:02:11.419 wired to keep the legacy going, keep pushing 00:02:11.419 --> 00:02:14.039 through. But in this case, the family behind 00:02:14.039 --> 00:02:16.860 Kuhl's Dairy Juan and Kirstie Hargraves, they 00:02:16.860 --> 00:02:20.500 made a strategic pivot. On January 31st, 2026, 00:02:20.800 --> 00:02:23.319 they delivered their very last bottle of milk. 00:02:23.719 --> 00:02:25.900 And this is happening right now. This isn't some 00:02:25.900 --> 00:02:28.280 history lesson from the 1980s when the supermarkets 00:02:28.280 --> 00:02:31.259 took over. This is fresh. And the reason we are 00:02:31.259 --> 00:02:33.560 dedicating a whole deep dive to this is because 00:02:33.560 --> 00:02:36.639 of the specific economic trap they identified. 00:02:37.120 --> 00:02:39.800 We need to talk about the value added myth versus 00:02:39.800 --> 00:02:43.199 the the brutal economic reality of what we're 00:02:43.199 --> 00:02:45.400 calling the middle zone. I think we all have 00:02:45.400 --> 00:02:48.180 this romanticized idea of value added processing. 00:02:48.419 --> 00:02:50.000 You know, you see the milk check, you see the 00:02:50.000 --> 00:02:52.039 price in the grocery store and you think, man, 00:02:52.120 --> 00:02:53.759 if I could just capture that middle bit, I'd 00:02:53.759 --> 00:02:57.000 be set. Of course, everyone thinks that. I admit, 00:02:57.039 --> 00:02:59.740 I usually think more customers equals better. 00:03:00.080 --> 00:03:02.960 If I can get into a thousand homes, surely that's 00:03:02.960 --> 00:03:05.810 better than 500. It just feels right. And that 00:03:05.810 --> 00:03:08.009 is exactly the assumption we are going to challenge 00:03:08.009 --> 00:03:10.750 today. I'm going to argue that most farmers are 00:03:10.750 --> 00:03:12.870 looking at the customer count, and that is absolutely 00:03:12.870 --> 00:03:16.229 the wrong metric. The wrong metric. It's a vanity 00:03:16.229 --> 00:03:19.449 metric. There is a ratio, a specific retail ratio, 00:03:19.610 --> 00:03:23.030 that determines if you are making money or, you 00:03:23.030 --> 00:03:25.039 know, just... spinning your wheels and burning 00:03:25.039 --> 00:03:27.180 yourself out. Okay. I'm ready to have my assumptions 00:03:27.180 --> 00:03:29.259 challenged because when you look at the details 00:03:29.259 --> 00:03:31.400 of what Juan and Kirstie were dealing with, it 00:03:31.400 --> 00:03:34.900 just, it sounds exhausting. Exhausting is an 00:03:34.900 --> 00:03:37.039 understatement. Yeah. I mean, let's set the scene 00:03:37.039 --> 00:03:39.719 regarding the lineage first because it really 00:03:39.719 --> 00:03:41.479 raises the stakes here. Yeah. This wasn't some 00:03:41.479 --> 00:03:44.039 new venture. No. We are talking about a business 00:03:44.039 --> 00:03:47.360 that started with Leslie Coyle way back in what? 00:03:47.689 --> 00:03:51.210 roughly 1942. Doorstep delivery started in the 00:03:51.210 --> 00:03:54.169 1950s. This passed down through the generations, 00:03:54.409 --> 00:03:57.590 Ian and Gary Coyle, and then eventually to Juan 00:03:57.590 --> 00:03:59.789 and Kirstie. So you have 75 years of brand equity. 00:03:59.909 --> 00:04:01.550 That is not something you walk away from lightly. 00:04:01.750 --> 00:04:04.270 That's three generations of the milk is here 00:04:04.270 --> 00:04:06.770 moment. Yeah, exactly. You're talking about grandmothers 00:04:06.770 --> 00:04:08.870 who bought milk from the grandfather, and now 00:04:08.870 --> 00:04:12.819 the grandkids are buying from the grandson. The 00:04:12.819 --> 00:04:15.620 emotional weight of that is heavy. It's really 00:04:15.620 --> 00:04:18.779 heavy. No, absolutely not. It's massive. But 00:04:18.779 --> 00:04:21.379 listen to how Juan described the reality of their 00:04:21.379 --> 00:04:23.800 life just before they closed the retail side. 00:04:24.019 --> 00:04:26.839 He called it plate spinning. I can imagine. They 00:04:26.839 --> 00:04:30.170 have six kids at home. They have a young worker 00:04:30.170 --> 00:04:32.629 who is still learning the ropes, you know, needs 00:04:32.629 --> 00:04:35.129 a lot of supervision. And they had absolutely 00:04:35.129 --> 00:04:38.069 no budget for relief staff. That's the part that 00:04:38.069 --> 00:04:40.209 hits home for me. That is the phrase that every 00:04:40.209 --> 00:04:42.370 farmer understands in their bones. The no relief 00:04:42.370 --> 00:04:44.699 staff struggle. Right. It's one thing to run 00:04:44.699 --> 00:04:47.300 a dairy farm. We all know that's a 24 -7 job. 00:04:47.560 --> 00:04:50.600 But when you add processing and delivery on top 00:04:50.600 --> 00:04:53.639 of it, and you're the only one who really knows 00:04:53.639 --> 00:04:56.240 how to do all of it. It's a recipe for disaster. 00:04:56.560 --> 00:04:58.939 It is. You are essentially creating a prison 00:04:58.939 --> 00:05:01.220 where you are both the warden and the inmate. 00:05:01.300 --> 00:05:03.560 You can't leave. You can't get sick. You can't 00:05:03.560 --> 00:05:05.220 take a day off. And the schedule he described 00:05:05.220 --> 00:05:07.959 is just brutal. Finishing delivery rounds at 00:05:07.959 --> 00:05:10.139 1 o 'clock in the morning. Milking starts at 00:05:10.139 --> 00:05:13.189 5 a .m. So that's a four -hour window, theoretically, 00:05:13.209 --> 00:05:15.769 for sleep. Theoretically. Yeah. You know you 00:05:15.769 --> 00:05:17.509 aren't asleep the second your head hits the pillow. 00:05:17.569 --> 00:05:20.329 You're wired. Oh, not a chance. Your mind is 00:05:20.329 --> 00:05:22.470 racing. You're thinking about the invoices you 00:05:22.470 --> 00:05:24.910 forgot to print or the funny noise the transmission 00:05:24.910 --> 00:05:27.579 was making on the last hill? And that's if nothing 00:05:27.579 --> 00:05:30.139 goes wrong. That's the best case scenario. That's 00:05:30.139 --> 00:05:32.560 if the van starts in the cold. That's if the 00:05:32.560 --> 00:05:35.019 bottling machine doesn't jam halfway through 00:05:35.019 --> 00:05:37.939 a run. If you have a breakdown at midnight, that 00:05:37.939 --> 00:05:40.560 four hours of sleep becomes zero hours of sleep, 00:05:40.600 --> 00:05:42.540 and you're still getting up for milking at 5 00:05:42.540 --> 00:05:45.259 a .m. And you can do that for a week, maybe a 00:05:45.259 --> 00:05:48.079 month during planting or harvest, but you can't 00:05:48.079 --> 00:05:50.379 do that for a decade. Your body and your mind 00:05:50.379 --> 00:05:53.180 will just break. And the mental load. It's not 00:05:53.180 --> 00:05:56.209 just the physical labor, is it? It's the customers 00:05:56.209 --> 00:05:58.189 ringing the phone because their milk isn't on 00:05:58.189 --> 00:06:01.230 the doorstep at exactly 7 .01 a .m. Oh, yeah. 00:06:01.410 --> 00:06:04.089 The calls. It's the invoices piling up. It's 00:06:04.089 --> 00:06:07.069 the farm assurance paperwork. One mentioned specifically 00:06:07.069 --> 00:06:09.949 that the paperwork had become a massive thing 00:06:09.949 --> 00:06:12.649 to undertake. It always is. And when you are 00:06:12.649 --> 00:06:15.569 sleep deprived, that paperwork feels like climbing 00:06:15.569 --> 00:06:17.769 a mountain. You're staring at some compliance 00:06:17.769 --> 00:06:19.850 form at 2 in the afternoon, your eyes are burning, 00:06:19.990 --> 00:06:22.519 and you just want to be out with the cows. But 00:06:22.519 --> 00:06:24.639 there was a logistical wrinkle here, too, wasn't 00:06:24.639 --> 00:06:27.199 there? It wasn't just that they were busy. The 00:06:27.199 --> 00:06:30.139 setup itself, the physical layout, had some serious 00:06:30.139 --> 00:06:32.660 friction. This is where it gets really interesting 00:06:32.660 --> 00:06:35.480 from a systems perspective. A massive amount 00:06:35.480 --> 00:06:38.540 of friction. This is a classic case of operational 00:06:38.540 --> 00:06:41.639 complexity just sort of creeping in over time, 00:06:41.759 --> 00:06:45.000 decision by decision. So they move the cows to 00:06:45.000 --> 00:06:48.920 a new greenfield site. in 2015. Great for the 00:06:48.920 --> 00:06:51.699 cows, you know, modern facilities, better for 00:06:51.699 --> 00:06:53.920 welfare. Makes perfect sense. You want to upgrade 00:06:53.920 --> 00:06:55.980 the herd's environment. But the processing plant, 00:06:56.180 --> 00:06:58.360 it stayed at the old site. Oh, I see where this 00:06:58.360 --> 00:07:00.459 is going. So you've got a separation of church 00:07:00.459 --> 00:07:02.199 and state, but in this case, it's separation 00:07:02.199 --> 00:07:05.439 of cow and bottle. You've just created a transportation 00:07:05.439 --> 00:07:08.300 leg right inside your own operation, a daily 00:07:08.300 --> 00:07:11.339 commute for the milk. Right, which is just another 00:07:11.339 --> 00:07:13.699 point of failure, another cost center. You can 00:07:13.699 --> 00:07:15.579 guess the workflow. They had to haul milk back 00:07:15.579 --> 00:07:19.420 and forth. And get this, they retrofitted a DX 00:07:19.420 --> 00:07:22.360 bulk tank onto an old grain trailer chassis. 00:07:22.680 --> 00:07:26.740 A grain trailer chassis. That is the most farmer 00:07:26.740 --> 00:07:28.879 -engineered solution I have ever heard in my 00:07:28.879 --> 00:07:32.019 life. Isn't it? I can picture it perfectly. I 00:07:32.019 --> 00:07:34.139 bet I know five guys who would do the exact same 00:07:34.139 --> 00:07:37.120 thing. It probably worked great mechanically, 00:07:37.300 --> 00:07:40.339 but it's just one more piece of iron to maintain. 00:07:40.540 --> 00:07:42.540 Exactly. One more set of tires, one more hitch, 00:07:42.740 --> 00:07:45.240 one more potential hydraulic leak at 10 o 'clock 00:07:45.240 --> 00:07:48.180 at night. Exactly. Five days a week, hitching 00:07:48.180 --> 00:07:50.779 up that grain trailer tank, hauling milk from 00:07:50.779 --> 00:07:53.300 the new farm to the old processing site. That 00:07:53.300 --> 00:07:56.639 is extra diesel. That is extra time. And most 00:07:56.639 --> 00:07:59.100 importantly, that is extra risk. Talk about the 00:07:59.100 --> 00:08:00.839 risk. Every time you move milk, you introduce 00:08:00.839 --> 00:08:03.379 a variable. Temperature fluctuations, agitation, 00:08:03.480 --> 00:08:05.779 contamination risk. You're taking this perfect 00:08:05.779 --> 00:08:08.860 raw product, pumping it onto a trailer, driving 00:08:08.860 --> 00:08:10.980 it down the road, and then pumping it off again. 00:08:11.079 --> 00:08:13.220 Every pump is a potential problem. Every hose 00:08:13.220 --> 00:08:16.680 is a sanitation challenge. And if you are finishing 00:08:16.680 --> 00:08:19.470 rounds at 1 a .m. The absolute last thing you 00:08:19.470 --> 00:08:21.850 want to do is haul a trailer across town. It 00:08:21.850 --> 00:08:23.829 just it highlights the difficulty of finding 00:08:23.829 --> 00:08:26.350 staff, too. Oh, for sure. You need a unicorn 00:08:26.350 --> 00:08:29.209 employee. You really do. You need someone who 00:08:29.209 --> 00:08:32.950 can milk a cow with a gentle hand. Operate a 00:08:32.950 --> 00:08:35.529 pasteurizer without scorching the milk. Bottle 00:08:35.529 --> 00:08:37.950 it without making a mess. A &D drive a delivery 00:08:37.950 --> 00:08:40.509 route in the dark on icy roads. And fix the van 00:08:40.509 --> 00:08:42.090 when it breaks down at the top of a hill. Right, 00:08:42.149 --> 00:08:44.129 with a roll of duct tape and a pair of pliers. 00:08:44.330 --> 00:08:46.570 Those people don't exist. Or if they do, you 00:08:46.570 --> 00:08:48.710 can't afford them on the margins of a small delivery 00:08:48.710 --> 00:08:51.870 route. You're looking for a COO, a mechanic, 00:08:52.070 --> 00:08:54.950 a food scientist, and a laborer all rolled into 00:08:54.950 --> 00:08:57.629 one paycheck. It's asking for the impossible. 00:08:58.029 --> 00:09:00.370 So that is the human cost? Yeah. That is the 00:09:00.370 --> 00:09:03.240 why. behind the burnout. But let's zoom out and 00:09:03.240 --> 00:09:04.919 look at the industry structure because Cool's 00:09:04.919 --> 00:09:08.500 Dairy wasn't just unlucky. They were stuck. They 00:09:08.500 --> 00:09:10.419 were stuck in what we were calling the middle 00:09:10.419 --> 00:09:13.440 zone. OK. This is crucial for anyone listening 00:09:13.440 --> 00:09:15.740 who is maybe thinking about starting a creamery 00:09:15.740 --> 00:09:17.539 or who is currently running one and feeling that 00:09:17.539 --> 00:09:19.840 same pinch. I like this concept of the middle 00:09:19.840 --> 00:09:22.480 zone. Break that down for us, because usually 00:09:22.480 --> 00:09:25.080 we think of businesses as just small, medium 00:09:25.080 --> 00:09:28.710 or large. Why is the middle so dangerous? Usually 00:09:28.710 --> 00:09:31.750 the middle is safe. It's the compromise. In processing, 00:09:32.029 --> 00:09:34.850 the middle is the kill zone. Think of it as a 00:09:34.850 --> 00:09:37.570 spectrum of milk delivery. On one end, you have 00:09:37.570 --> 00:09:40.149 the scale operators. Look at McQueen's Dairies 00:09:40.149 --> 00:09:44.669 in Scotland. They're huge. 11 depots, 200 staff, 00:09:44.950 --> 00:09:47.509 massive growth. They're a logistics company that 00:09:47.509 --> 00:09:49.970 happens to sell milk. Precisely. They have economies 00:09:49.970 --> 00:09:52.850 of scale. If a van breaks down, they have a fleet 00:09:52.850 --> 00:09:55.480 manager and a spare van. If a driver calls in 00:09:55.480 --> 00:09:57.440 sick, they have a roster of other drivers to 00:09:57.440 --> 00:09:59.720 call. They have purchasing power on fuel, on 00:09:59.720 --> 00:10:02.480 glass, on vehicles. They are buying bottles by 00:10:02.480 --> 00:10:04.600 the shipping container, not by the pallet. Exactly. 00:10:04.679 --> 00:10:06.960 Their unit cost just drops and drops because 00:10:06.960 --> 00:10:09.500 their volume is massive. Yeah. Then go to the 00:10:09.500 --> 00:10:11.759 complete opposite end of the spectrum, the micro 00:10:11.759 --> 00:10:14.700 operators. The source mentions a guy named Gareth 00:10:14.700 --> 00:10:17.259 Baird in Northern Ireland. Okay. He started with 00:10:17.259 --> 00:10:21.320 zero employees. Zero. He delivers maybe 120 bottles 00:10:21.320 --> 00:10:24.980 a night. Low overhead. Extremely low. Zero overhead, 00:10:25.179 --> 00:10:27.440 practically. He's doing it himself in his own 00:10:27.440 --> 00:10:29.940 vehicle. If he wants to stop for a week, he stops. 00:10:30.120 --> 00:10:31.919 If he makes a dollar, it's a dollar in his pocket. 00:10:32.120 --> 00:10:34.200 He doesn't have a payroll tax headache. He doesn't 00:10:34.200 --> 00:10:37.200 have an HR department. He doesn't have a fleet 00:10:37.200 --> 00:10:40.200 of vehicles to insure and maintain. So he's nimble. 00:10:40.220 --> 00:10:44.059 He's flexible. He has no fixed costs tying him 00:10:44.059 --> 00:10:47.220 down. So where does COIL sit in all this? They 00:10:47.220 --> 00:10:49.480 are right in the dangerous middle. They were 00:10:49.480 --> 00:10:53.480 milking 120 to 130 cows. They had a staff of 00:10:53.480 --> 00:10:57.440 five, Juan, Kirstie, Mark, Brian, Lorna. They 00:10:57.440 --> 00:11:00.299 were serving 850 households. But see, that sounds 00:11:00.299 --> 00:11:03.519 like a solid business, though. 850 homes, that's 00:11:03.519 --> 00:11:05.200 a lot of milk. That's a lot of community impact. 00:11:05.299 --> 00:11:07.440 If you told me you had 850 customers, I'd say 00:11:07.440 --> 00:11:09.610 you were winning. It sounds like a lot, but here 00:11:09.610 --> 00:11:12.470 is the trap. They were too big to run on zero 00:11:12.470 --> 00:11:14.970 overhead like Gareth Baird. They needed staff. 00:11:15.250 --> 00:11:17.070 They needed a real bottling line. They needed 00:11:17.070 --> 00:11:19.529 multiple vans. Okay. But they were too small 00:11:19.529 --> 00:11:21.509 to utilize that expensive equipment efficiently. 00:11:22.449 --> 00:11:25.570 They had the cost of the big guys, but the volume 00:11:25.570 --> 00:11:28.090 of the small guys. So it's the uncanny valley 00:11:28.090 --> 00:11:30.669 of business models. That's a great way to put 00:11:30.669 --> 00:11:32.470 it. You have all the headaches of a corporation, 00:11:32.809 --> 00:11:36.629 the HR, the compliance, the maintenance contracts, 00:11:36.710 --> 00:11:39.350 and you have all the resource constraints of 00:11:39.350 --> 00:11:42.769 a family farm. Yes. You have to buy the industrial 00:11:42.769 --> 00:11:45.049 -grade pasteurizer, but you're only running it 00:11:45.049 --> 00:11:47.429 for two hours a day. The rest of the time, it's 00:11:47.429 --> 00:11:49.789 just sitting there depreciating. And that's a 00:11:49.789 --> 00:11:53.009 killer. That idle time is invisible on a cash 00:11:53.009 --> 00:11:55.789 flow statement, but it's eating you alive. Precisely. 00:11:55.830 --> 00:11:58.330 And historically, this is where the industry 00:11:58.330 --> 00:12:02.289 has collapsed. In the 1970s, UK milk delivery 00:12:02.289 --> 00:12:06.809 was 99 % doorstep. 99. By the late 2010s, it 00:12:06.809 --> 00:12:09.950 was down to 3%. That collapse didn't happen to 00:12:09.950 --> 00:12:12.049 the McQueens of the world. They consolidated 00:12:12.049 --> 00:12:14.730 and grew. It happened to the thousands and thousands 00:12:14.730 --> 00:12:17.190 of coils dairies that couldn't bridge that gap 00:12:17.190 --> 00:12:20.340 between family helper. And industrial logistics. 00:12:20.679 --> 00:12:22.899 It's interesting because I think a lot of farmers, 00:12:23.000 --> 00:12:25.120 myself included, we look at that middle ground 00:12:25.120 --> 00:12:27.159 as the goal. Right. It seems like the sweet spot. 00:12:27.360 --> 00:12:29.679 You think, I don't want to be a factory, but 00:12:29.679 --> 00:12:31.879 I want to be bigger than a hobby. But what you're 00:12:31.879 --> 00:12:36.820 saying is that specific size, 120 cows, 800 customers, 00:12:36.960 --> 00:12:40.600 is actually the most fragile place to be. It's 00:12:40.600 --> 00:12:42.360 quicksand. You're swimming in the deepest part 00:12:42.360 --> 00:12:45.179 of the ocean with the smallest life vest. It 00:12:45.179 --> 00:12:47.980 is the bleed out zone. You are working harder 00:12:47.980 --> 00:12:50.919 than the big guys for less margin than the small 00:12:50.919 --> 00:12:53.980 guys. And this brings us to the core metric, 00:12:54.200 --> 00:12:57.259 the number that really defines this failure point, 00:12:57.419 --> 00:13:00.820 the retail ratio. OK, let's unpack this ratio, 00:13:00.980 --> 00:13:03.639 because as I said earlier, I look at 850 households 00:13:03.639 --> 00:13:06.100 and I think, wow, that's a success. I'm doing 00:13:06.100 --> 00:13:09.360 the math in my head. 850 stops, maybe two liters 00:13:09.360 --> 00:13:12.039 per stop. That's a decent amount of milk flow. 00:13:12.360 --> 00:13:15.379 850 households is a vanity metric. It feels good. 00:13:15.419 --> 00:13:17.659 It looks busy. It makes for a good story in the 00:13:17.659 --> 00:13:20.019 local paper. But it's not the real story. No. 00:13:20.120 --> 00:13:22.620 You have to look at the milk flow relative to 00:13:22.620 --> 00:13:26.759 your total production. At Quill's Dairy, 80 % 00:13:26.759 --> 00:13:28.659 of their milk was going to the creamery, the 00:13:28.659 --> 00:13:32.379 wholesale market. 80 %? Only about 20 % was going 00:13:32.379 --> 00:13:34.600 to those 850 households. Oh, wait. Stop right 00:13:34.600 --> 00:13:37.580 there. Only 20%. So for every five cans of milk 00:13:37.580 --> 00:13:39.779 coming out of that parlor, only one was going. 00:13:40.139 --> 00:13:42.279 into their own bottles. That's right. And the 00:13:42.279 --> 00:13:44.259 other four were just leaving on a tanker truck 00:13:44.259 --> 00:13:47.899 like a standard everyday farm. Correct. But here 00:13:47.899 --> 00:13:50.759 is the kicker. And this is the most important 00:13:50.759 --> 00:13:55.299 part of this whole deep dive. That 20 % of retail 00:13:55.299 --> 00:14:00.000 milk had to carry 100 % of the fixed costs for 00:14:00.000 --> 00:14:04.320 the processing plant. Ouch. Okay. When you put 00:14:04.320 --> 00:14:06.419 it that way, the math gets ugly really, really 00:14:06.419 --> 00:14:09.320 fast. It's brutal. You have a pasteurizer, a 00:14:09.320 --> 00:14:11.740 bottler, the building itself, the floor drains, 00:14:12.000 --> 00:14:14.620 the insurance, the vans, the weeges for the delivery 00:14:14.620 --> 00:14:17.480 drivers. Yeah. And you are only pushing 20 % 00:14:17.480 --> 00:14:20.059 of your potential volume through it. Think about 00:14:20.059 --> 00:14:22.820 utilization. If you buy a combine and only cut 00:14:22.820 --> 00:14:24.799 your own 100 acres with it, that's a very expensive 00:14:24.799 --> 00:14:27.240 combine per acre. Right. You need custom work 00:14:27.240 --> 00:14:29.320 to make it pay. It's the same with the bottling 00:14:29.320 --> 00:14:33.500 line. 20 % utilization means each liter of milk 00:14:33.500 --> 00:14:36.259 that goes through it carries five times the fixed 00:14:36.259 --> 00:14:38.720 cost compared to a plant that's running at full 00:14:38.720 --> 00:14:41.419 capacity. And the market doesn't care about your 00:14:41.419 --> 00:14:43.639 utilization. You can't charge five times the 00:14:43.639 --> 00:14:45.220 price for the milk just because you aren't running 00:14:45.220 --> 00:14:47.200 your machine enough. Not a chance. The customer 00:14:47.200 --> 00:14:49.860 pays for the milk, not for your inefficiency. 00:14:50.419 --> 00:14:52.919 They don't care if your pasteurizer is sitting 00:14:52.919 --> 00:14:55.940 there idle for 22 hours a day. That's your problem, 00:14:56.019 --> 00:14:59.129 not theirs. Exactly. Let's look at the hard numbers 00:14:59.129 --> 00:15:02.730 on the equipment. A basic, tiny -batch pasteurizer 00:15:02.730 --> 00:15:06.009 for micro setup for the Gareth Baird -type operator 00:15:06.009 --> 00:15:10.250 might be $14 ,000. Okay. Manageable? But Kuhl's 00:15:10.250 --> 00:15:13.370 wasn't micro. They needed a real facility. We're 00:15:13.370 --> 00:15:18.190 talking $62 ,000 to $350 ,000 for a proper setup. 00:15:18.429 --> 00:15:20.730 And that's before the building. Plus the building. 00:15:20.789 --> 00:15:23.950 Plus the installation. Plus the inevitable upgrades 00:15:23.950 --> 00:15:26.259 the inspector demands when they show up. Oh, 00:15:26.299 --> 00:15:27.740 you need a different kind of floor drain here. 00:15:27.940 --> 00:15:30.120 That wall needs to be stainless steel. All of 00:15:30.120 --> 00:15:32.940 that. So let's just take a hypothetical bottling 00:15:32.940 --> 00:15:36.759 line. A modest one. Say it costs $150 ,000 and 00:15:36.759 --> 00:15:40.299 it has a 12 -year life. Pruits standard. That 00:15:40.299 --> 00:15:44.500 is roughly $12 ,500 a year in depreciation. That 00:15:44.500 --> 00:15:46.679 is the silent killer. It's money you have to 00:15:46.679 --> 00:15:48.960 set aside every single year just to replace the 00:15:48.960 --> 00:15:52.179 machine when it dies. It's not profit. So if 00:15:52.179 --> 00:15:56.580 they have 850 customers... Let me do some quick 00:15:56.580 --> 00:15:58.980 farmer math here. Twelve thousand five hundred 00:15:58.980 --> 00:16:01.419 divided by eight fifty. That's wow. That's almost 00:16:01.419 --> 00:16:03.940 fifteen dollars per customer per year. Right. 00:16:04.000 --> 00:16:06.379 Before you buy the glass bottle, before you pay 00:16:06.379 --> 00:16:08.659 the driver, before you pay for the diesel, before 00:16:08.659 --> 00:16:11.860 you pay yourself, you are starting fifteen dollars 00:16:11.860 --> 00:16:15.000 in the hole per customer just on machine depreciation. 00:16:15.080 --> 00:16:16.879 And that's if you actually set the money aside, 00:16:17.100 --> 00:16:19.240 which let's be honest, most of us don't. Of course 00:16:19.240 --> 00:16:21.259 not. We use that cash flow to pay bills. And 00:16:21.259 --> 00:16:23.039 then 12 years later, when the machine finally 00:16:23.039 --> 00:16:25.440 gives up the ghost, we panic because the bank 00:16:25.440 --> 00:16:28.500 account is empty. We treat depreciation as profit, 00:16:28.639 --> 00:16:31.639 which is the oldest sin in farming. That is the 00:16:31.639 --> 00:16:34.120 definition of the trap. And here's the opportunity 00:16:34.120 --> 00:16:37.179 cost aspect that really struck me. This is the 00:16:37.179 --> 00:16:41.080 human element of the math. every hour Juan spent 00:16:41.080 --> 00:16:43.259 nursing that old bottling machine, trying to 00:16:43.259 --> 00:16:45.639 keep a 15 -year -old filler running at 1 o 'clock 00:16:45.639 --> 00:16:48.159 in the morning, was an hour he was not spending 00:16:48.159 --> 00:16:50.539 on the 80 % of the business that actually paid 00:16:50.539 --> 00:16:53.100 the bills. The cows. The cows, the genetics, 00:16:53.279 --> 00:16:56.179 the forage quality, the transition cow protocols, 00:16:56.539 --> 00:16:58.519 the stuff that generates the wholesale check 00:16:58.519 --> 00:17:00.500 that keeps the lights on. That is a profound 00:17:00.500 --> 00:17:03.159 realization. I mean, it really is. If the wholesale 00:17:03.159 --> 00:17:06.400 check is paying 80 % of the bills, but the retail 00:17:06.400 --> 00:17:08.579 side is taking up 80 % of your attention and 00:17:08.579 --> 00:17:11.220 your stress, your business is dangerously out 00:17:11.220 --> 00:17:13.299 of alignment. You are neglecting the profit center 00:17:13.299 --> 00:17:16.579 to subsidize the hobby. Oof. Subsidizing the 00:17:16.579 --> 00:17:18.799 hobby. That is a tough pill to swallow, but that 00:17:18.799 --> 00:17:21.930 is what the math says, isn't it? It is. If the 00:17:21.930 --> 00:17:24.450 retail side isn't paying for its own replacement 00:17:24.450 --> 00:17:26.910 parts, its own depreciation, then the cows are 00:17:26.910 --> 00:17:29.130 subsidizing the bottles. You are essentially 00:17:29.130 --> 00:17:32.609 taking money from the milk check to pay for the 00:17:32.609 --> 00:17:35.329 privilege of being a milkman. You are paying 00:17:35.329 --> 00:17:38.529 a fee to be tired. Paying a fee to be tired. 00:17:39.349 --> 00:17:42.190 That's perfect. So surely there are people making 00:17:42.190 --> 00:17:44.569 this work. It can't be impossible. We see local 00:17:44.569 --> 00:17:46.690 dairies thriving. I see the trucks on the road. 00:17:46.970 --> 00:17:49.170 Yeah, what's the secret sauce? What separates 00:17:49.170 --> 00:17:52.650 the successes from the ones caught in this trap? 00:17:52.930 --> 00:17:55.509 It's not impossible, but you have to get the 00:17:55.509 --> 00:17:57.710 ratio right. You have to commit. Let's look at 00:17:57.710 --> 00:18:00.269 a success story on the very same island, Cronk 00:18:00.269 --> 00:18:02.890 Allen Farm. Okay, same island, same regulations, 00:18:03.049 --> 00:18:05.269 same cost of living. What are they doing differently? 00:18:05.569 --> 00:18:09.029 Carl Hudson runs Cronk Allen. He milks 40 cows, 00:18:09.230 --> 00:18:12.250 a much smaller— 40 cows, okay. But here is the 00:18:12.250 --> 00:18:16.210 difference. He sends 100 % of his milk. to retail 00:18:16.210 --> 00:18:20.210 via nine delivery rounds. 100%. Ah, so he sized 00:18:20.210 --> 00:18:22.130 the herd to the bottle, not the other way around. 00:18:22.210 --> 00:18:24.730 Exactly. Nothing goes to the creamery. His equipment 00:18:24.730 --> 00:18:27.069 is fully utilized because the entire farm's output 00:18:27.069 --> 00:18:29.789 flows through it every single day. The revenue 00:18:29.789 --> 00:18:31.529 from the milk supports the assets completely. 00:18:31.769 --> 00:18:35.130 He doesn't have a wholesale side subsidizing 00:18:35.130 --> 00:18:37.589 a retail side. He is one unified, vertically 00:18:37.589 --> 00:18:41.029 integrated business. Correct. He's not a dairy 00:18:41.029 --> 00:18:44.509 farm with a bottling side hustle. He is a bottling 00:18:44.509 --> 00:18:47.529 plant that happens to own its own cows. That's 00:18:47.529 --> 00:18:51.049 a great distinction. His 40 cows are employees 00:18:51.049 --> 00:18:53.730 of the bottling plant, essentially. Every drop 00:18:53.730 --> 00:18:56.349 they produce has a destination that pays the 00:18:56.349 --> 00:18:59.470 premium. There's no waste. There's no dilution. 00:18:59.650 --> 00:19:01.549 And then let's look at a parallel from North 00:19:01.549 --> 00:19:03.789 America, because this isn't just a UK thing. 00:19:03.950 --> 00:19:07.279 Clark Farms in New York. They were in a situation 00:19:07.279 --> 00:19:10.680 very, very similar to Kuhl's. They were processing 00:19:10.680 --> 00:19:14.660 about 25 % of their milk, roughly 3 ,000 gallons 00:19:14.660 --> 00:19:16.660 a week. Which is a decent amount of milk. That's 00:19:16.660 --> 00:19:18.900 no small operation. 3 ,000 gallons a week takes 00:19:18.900 --> 00:19:20.799 real infrastructure. It's not something you do 00:19:20.799 --> 00:19:24.099 in your garage. It is, but the remaining 75 % 00:19:24.099 --> 00:19:26.359 was still being trucked off. They shut down their 00:19:26.359 --> 00:19:29.359 creamery in January 2026, practically the same 00:19:29.359 --> 00:19:31.470 week as Kuhl's. It's like there was something 00:19:31.470 --> 00:19:33.430 in the water. So what was their logic? Was it 00:19:33.430 --> 00:19:35.029 an old machine that broke down or something? 00:19:35.210 --> 00:19:37.569 It was pure margin analysis. They just sat down 00:19:37.569 --> 00:19:39.829 and did the hard math on the premium. They were 00:19:39.829 --> 00:19:43.369 making an extra dollar, $15 to $2 .15 per gallon 00:19:43.369 --> 00:19:45.650 on the retail milk. Which sounds good on paper. 00:19:45.769 --> 00:19:47.869 A buck or two extra is a buck or two extra. It 00:19:47.869 --> 00:19:50.710 does. But to get that premium, they calculated 00:19:50.710 --> 00:19:53.269 they were putting in... 70 to 90 extra hours 00:19:53.269 --> 00:19:55.730 a week? 90 hours a week for a couple of bucks 00:19:55.730 --> 00:19:58.410 a gallon on a quarter of the herd? That is insanity. 00:19:58.630 --> 00:20:00.809 That's slave labor. When they looked at the labor, 00:20:00.970 --> 00:20:04.029 the stress, the management complexity, and the 00:20:04.029 --> 00:20:07.470 fact that 75 % of the milk was leaving anyway, 00:20:07.750 --> 00:20:10.730 the margin premium wasn't worth the life cost. 00:20:10.910 --> 00:20:13.490 It just wasn't. It sounds like unpaid family 00:20:13.490 --> 00:20:16.789 labor is the invisible line item on so many of 00:20:16.789 --> 00:20:19.049 these P &Ls. It's the biggest subsidy in agriculture. 00:20:19.529 --> 00:20:22.019 It is. If you actually had to cut a check to 00:20:22.019 --> 00:20:24.960 a stranger to do those 90 hours, the business 00:20:24.960 --> 00:20:27.319 would be insolvent instantly. You'd be bankrupt 00:20:27.319 --> 00:20:29.660 in a month. 100%. If you can't afford to pay 00:20:29.660 --> 00:20:31.839 someone else to do it, you aren't running a business. 00:20:32.140 --> 00:20:35.019 You are buying yourself a low paying, high stress 00:20:35.019 --> 00:20:38.339 job and a job that comes with a lot of risk. 00:20:39.420 --> 00:20:41.460 These alternative models are popping up though, 00:20:41.519 --> 00:20:43.519 right? It's not just doorstep delivery anymore. 00:20:43.759 --> 00:20:46.220 I'm seeing a lot of these vending machines. I 00:20:46.220 --> 00:20:48.880 know a few guys who swear by them. The vending 00:20:48.880 --> 00:20:50.740 model is interesting. You could just put a little 00:20:50.740 --> 00:20:52.980 shed at the end of the driveway, put a fancy 00:20:52.980 --> 00:20:55.519 machine in it and collect the cash. Seems simple. 00:20:55.740 --> 00:20:58.160 Vending is growing fast in the UK and we're seeing 00:20:58.160 --> 00:21:01.039 it here now too. The beauty of it is the low 00:21:01.039 --> 00:21:03.740 labor. The customer drives to you, they fill 00:21:03.740 --> 00:21:06.880 their own bottle. I like that. No one AM delivery 00:21:06.880 --> 00:21:09.920 rounds. No van maintenance. No worrying about 00:21:09.920 --> 00:21:12.079 ice on the roads or a customer's dog chasing 00:21:12.079 --> 00:21:14.859 you down the driveway. But the tradeoff is volume 00:21:14.859 --> 00:21:17.640 and connection. Yeah. You don't have that doorstep 00:21:17.640 --> 00:21:20.460 loyalty. You're not a service. You're a product. 00:21:20.700 --> 00:21:23.279 Right. If it rains, people might not come. If 00:21:23.279 --> 00:21:25.160 it's cold, they'll just grab milk at Tesco or 00:21:25.160 --> 00:21:27.539 Walmart. Yeah. And you lose that whole community 00:21:27.539 --> 00:21:31.480 service aspect. The Cools was so famous for checking 00:21:31.480 --> 00:21:34.549 on the elderly, you know. being the eyes and 00:21:34.549 --> 00:21:37.190 ears of the neighborhood. True. A vending machine 00:21:37.190 --> 00:21:39.170 doesn't notice that Mrs. Gable hasn't picked 00:21:39.170 --> 00:21:41.529 up her newspapers for three days. A vending machine 00:21:41.529 --> 00:21:43.589 doesn't catch criminals, as the article pointed 00:21:43.589 --> 00:21:46.029 out. Well, I'd argue catching criminals isn't 00:21:46.029 --> 00:21:48.369 in my job description as a dairy farmer anyway. 00:21:48.690 --> 00:21:51.309 But I get the point. You lose the brand stickiness. 00:21:51.670 --> 00:21:54.549 A vending machine is a transaction. A milkman 00:21:54.549 --> 00:21:57.119 is a relationship. Right. What about the community 00:21:57.119 --> 00:21:59.579 -supported agriculture model, the CSA approach? 00:21:59.779 --> 00:22:01.779 Oh, yeah, I've heard of these. Stroud Microdairy 00:22:01.779 --> 00:22:04.599 was one, right? Exactly. This is where the community 00:22:04.599 --> 00:22:08.019 prepays for shares in the dairy's output. It's 00:22:08.019 --> 00:22:10.140 fantastic for cash flow. You get the money up 00:22:10.140 --> 00:22:13.079 front, which is a farmer's dream. It stabilizes 00:22:13.079 --> 00:22:16.599 the income, but... There's always a but. Governance. 00:22:17.129 --> 00:22:19.829 Oh, count me out. That sounds like my personal 00:22:19.829 --> 00:22:22.809 nightmare. I knew you'd say that. It involved 00:22:22.809 --> 00:22:25.130 heavy community engagement. You have a board 00:22:25.130 --> 00:22:26.950 of directors made up of your customers. You have 00:22:26.950 --> 00:22:29.049 to give annual reports. You have to explain to 00:22:29.049 --> 00:22:31.210 a committee why the milk yield is down this week. 00:22:31.329 --> 00:22:33.849 Yeah, I would rather wrestle a fresh heifer than 00:22:33.849 --> 00:22:36.670 sit in a board meeting explaining lactation curves 00:22:36.670 --> 00:22:39.750 to a committee of suburbanites. Why is the milk 00:22:39.750 --> 00:22:42.289 a little thin today? Well, Karen, it's because 00:22:42.289 --> 00:22:45.109 of the heat stress index and a bad batch of silage. 00:22:45.740 --> 00:22:47.960 I do not want to have that conversation. You 00:22:47.960 --> 00:22:49.799 don't want to justify your management decisions 00:22:49.799 --> 00:22:52.640 to people who have never worn muck boots. Never. 00:22:52.740 --> 00:22:56.299 So every model has a cost. The coils model failed 00:22:56.299 --> 00:22:59.039 because it was stuck in the middle. The Kronk 00:22:59.039 --> 00:23:01.660 -Allen model works because it's 100 % committed. 00:23:01.960 --> 00:23:05.680 The vending model works on low labor. The CSA 00:23:05.680 --> 00:23:08.160 works on high engagement. You have to pick one. 00:23:08.670 --> 00:23:10.549 You have to pick a lane. You can't be a little 00:23:10.549 --> 00:23:12.869 bit of everything. You cannot be a full scale 00:23:12.869 --> 00:23:17.569 wholesaler, a half scale retailer without bleeding 00:23:17.569 --> 00:23:20.410 cash or sanity or both. Let's talk about the 00:23:20.410 --> 00:23:22.579 future, though. Because we always hear that technology 00:23:22.579 --> 00:23:25.079 is going to save us. I keep hearing about these 00:23:25.079 --> 00:23:28.140 on -farm processing robots. Lilly has the orbiter, 00:23:28.200 --> 00:23:29.839 right? Isn't that the ultimate solution? You 00:23:29.839 --> 00:23:31.660 just plug it in and it bottles the milk for you. 00:23:31.839 --> 00:23:33.519 It sounds like the dream, doesn't it? The Lilly 00:23:33.519 --> 00:23:36.599 orbiter. Fully automated pasteurizing, bottling, 00:23:36.599 --> 00:23:39.140 labeling. It connects directly to the milking 00:23:39.140 --> 00:23:41.099 robot. You hook it up to the robot. You go to 00:23:41.099 --> 00:23:43.180 sleep. You wake up in the morning to pallets 00:23:43.180 --> 00:23:45.480 of bottled milk. It removes the human element 00:23:45.480 --> 00:23:48.660 from the 1 a .m. shift. It solves the labor problem. 00:23:48.940 --> 00:23:52.210 Here is the reality check. As of right now, there 00:23:52.210 --> 00:23:54.230 are about five of these units operating in the 00:23:54.230 --> 00:23:57.069 Netherlands and Belgium. Five. They're expanding 00:23:57.069 --> 00:24:00.009 to Germany. So early days. Very early. But in 00:24:00.009 --> 00:24:02.890 North America. Yeah. The webpage is live. Sure. 00:24:03.009 --> 00:24:04.549 It looks pretty. There are some nice videos. 00:24:04.849 --> 00:24:07.390 But there is no availability date. No pricing, 00:24:07.549 --> 00:24:10.210 no support network. So it's vaporware for us 00:24:10.210 --> 00:24:12.329 right now. It's a brochure, not a machine you 00:24:12.329 --> 00:24:15.029 can actually buy and install. Essentially. I 00:24:15.029 --> 00:24:17.809 mean, even the Lely Astronaut A5 next milking 00:24:17.809 --> 00:24:22.309 robot isn't due until after 2026. If the orbiter 00:24:22.309 --> 00:24:24.029 is behind that in the product pipeline, we could 00:24:24.029 --> 00:24:28.069 be talking years, 2028, 2030. And if your bottling 00:24:28.069 --> 00:24:30.470 line is 12 years old and rattling like a bag 00:24:30.470 --> 00:24:33.250 of bolts today, you can't wait until 2028 for 00:24:33.250 --> 00:24:35.849 a robot to save you. No. You'll be out of business 00:24:35.849 --> 00:24:37.349 before. Before the technician even arrives to 00:24:37.349 --> 00:24:39.910 pour the concrete pad for it. Exactly. And this 00:24:39.910 --> 00:24:42.670 is a huge point for everyone listening. Don't 00:24:42.670 --> 00:24:44.630 wait for technology to save a broken business 00:24:44.630 --> 00:24:48.069 model. If your bottler is dying now, you have 00:24:48.069 --> 00:24:50.109 to make a decision now with the options you have 00:24:50.109 --> 00:24:53.470 now. Cools understood this. They exited on their 00:24:53.470 --> 00:24:56.150 own terms while the farm was still healthy, rather 00:24:56.150 --> 00:24:58.369 than waiting for a catastrophic breakdown to 00:24:58.369 --> 00:25:00.349 force their hand. They controlled the landing. 00:25:00.490 --> 00:25:03.269 That's a key point. They exited into a safety 00:25:03.269 --> 00:25:06.660 net. Yes. The creamery, the local co -op, took 00:25:06.660 --> 00:25:09.500 them back. They had a market for that 80%, and 00:25:09.500 --> 00:25:11.559 they were able to put the other 20 % on that 00:25:11.559 --> 00:25:14.380 same truck. And that's not guaranteed, is it, 00:25:14.380 --> 00:25:16.900 in this market, especially for a smaller producer? 00:25:17.160 --> 00:25:19.559 Oh, and looking at the market pressures, that 00:25:19.559 --> 00:25:23.140 safety net might be getting holes in it. The 00:25:23.140 --> 00:25:25.420 AHDB, that's the Agriculture and Horticulture 00:25:25.420 --> 00:25:27.859 Development Board in the UK, is warning that 00:25:27.859 --> 00:25:29.980 farm gate prices are under pressure into mid 00:25:29.980 --> 00:25:32.500 -2026. We're feeling that here, too. Wholesale 00:25:32.500 --> 00:25:35.039 volatility is real. Processors are looking to 00:25:35.039 --> 00:25:38.019 cut costs, improve efficiency, not add small, 00:25:38.180 --> 00:25:40.339 complex pickups from farms that just drop their 00:25:40.339 --> 00:25:42.759 retail route. That's the scary part. It creates 00:25:42.759 --> 00:25:45.819 a vicious cycle. As wholesale prices drop, the 00:25:45.819 --> 00:25:49.339 temptation to go retail increases. You see the 00:25:49.339 --> 00:25:51.500 milk check shrinking and you think, I need to 00:25:51.500 --> 00:25:53.579 take control. I need to bottle it myself. The 00:25:53.579 --> 00:25:56.960 co -op is screwing me. is a trap. It's a panic 00:25:56.960 --> 00:26:00.200 move. If you jump into retail because you are 00:26:00.200 --> 00:26:02.640 panicked about wholesale prices, you are making 00:26:02.640 --> 00:26:05.200 an emotional decision, not a structural one. 00:26:05.319 --> 00:26:07.640 And you're probably undercapitalized. You are. 00:26:07.900 --> 00:26:10.180 And if you fall into that middle zone, you are 00:26:10.180 --> 00:26:12.559 just increasing your costs while your core revenue 00:26:12.559 --> 00:26:15.700 is already rake. You are doubling down on risk 00:26:15.700 --> 00:26:18.099 when you can least afford it. You are adding 00:26:18.099 --> 00:26:21.000 debt and labor to a situation that is already 00:26:21.000 --> 00:26:24.299 cash poor. So don't pivot to retail out of desperation. 00:26:25.019 --> 00:26:27.160 Pivot to retail only if you are ready to go all 00:26:27.160 --> 00:26:29.380 in like Cronk Allen. Do it from a position of 00:26:29.380 --> 00:26:32.359 strength, not weakness. Precisely. Now, I want 00:26:32.359 --> 00:26:34.539 to hit on some contrarian takes. Things that 00:26:34.539 --> 00:26:36.559 go against the grain of what you usually hear 00:26:36.559 --> 00:26:38.619 in the industry coffee shops. My favorite part. 00:26:38.799 --> 00:26:40.339 Stuff people whisper but don't say out loud. 00:26:40.519 --> 00:26:42.660 Let's hear them. I love a good argument. First 00:26:42.660 --> 00:26:47.279 one. Surge demand is a lie. A lie. Explain. Cool's 00:26:47.279 --> 00:26:50.799 peaked at over 1 ,000 homes during COVID. Everyone 00:26:50.799 --> 00:26:53.380 was locked down. Everyone wanted milk delivered 00:26:53.380 --> 00:26:55.759 to their door. It felt like a boom. It felt like 00:26:55.759 --> 00:26:57.940 the new normal. We all thought the world had 00:26:57.940 --> 00:27:00.259 changed forever. Oh, yeah. We all remember the 00:27:00.259 --> 00:27:02.660 panic buying. People were buying milk and toilet 00:27:02.660 --> 00:27:04.400 paper like they were going out of style. They 00:27:04.400 --> 00:27:06.799 wanted the security of the milkman. It felt like 00:27:06.799 --> 00:27:10.299 a return to the 1950s. But it was a blip. It 00:27:10.299 --> 00:27:13.640 dropped back to 850. The lesson here is never 00:27:13.640 --> 00:27:17.160 invest based on the peak. If you saw that COVID 00:27:17.160 --> 00:27:20.019 surge and went out and bought a bigger van or 00:27:20.019 --> 00:27:22.440 a faster bottling line to handle that thousand 00:27:22.440 --> 00:27:25.599 customer demand, you are now sitting on excess 00:27:25.599 --> 00:27:29.380 capacity. You have to invest based on the plateau, 00:27:29.539 --> 00:27:32.619 the baseline, not the spike. That's good advice 00:27:32.619 --> 00:27:34.700 for any business, honestly. Trees don't grow 00:27:34.700 --> 00:27:37.059 to the sky and consumer habits snap back faster 00:27:37.059 --> 00:27:39.299 than rubber bands. As soon as the grocery stores 00:27:39.299 --> 00:27:41.579 opened back up and felt safe, convenience won. 00:27:42.200 --> 00:27:44.240 The milkman is great, but the supermarket is 00:27:44.240 --> 00:27:46.500 easy and it's on the way home from work. Second 00:27:46.500 --> 00:27:49.319 contrarian take. Genetics versus the bottle. 00:27:49.460 --> 00:27:51.680 This is right up your alley. Oh, I have some 00:27:51.680 --> 00:27:54.019 strong thoughts on this. Let's go. Most co -ops, 00:27:54.039 --> 00:27:57.259 most processors pay premiums for butterfat and 00:27:57.259 --> 00:28:01.180 protein. We spend decades, generations breeding 00:28:01.180 --> 00:28:04.359 cows for high components. We look at sires. We 00:28:04.359 --> 00:28:06.960 look at genomics. We feed for it. We chase that 00:28:06.960 --> 00:28:10.589 A2A2. We chase the high butterfat. We look at 00:28:10.589 --> 00:28:12.789 the bull proofs and what we want plus fat plus 00:28:12.789 --> 00:28:14.970 protein. That is where the bonus check comes 00:28:14.970 --> 00:28:17.390 from on the wholesale market. That is how you 00:28:17.390 --> 00:28:19.789 make real money on the milk truck. But what happens 00:28:19.789 --> 00:28:21.950 when you take that high component premium generating 00:28:21.950 --> 00:28:24.730 milk and put it into a standard retail bottle? 00:28:24.910 --> 00:28:26.970 You sell it for a flat price. A customer pays, 00:28:27.029 --> 00:28:30.109 say, $2 for a quart of milk, whether it has 3 00:28:30.109 --> 00:28:33.509 .5 % fat or 4 .5 % fat. They generally don't 00:28:33.509 --> 00:28:35.690 read the label that closely. They see whole milk 00:28:35.690 --> 00:28:38.589 and they grab it. Exactly. You are giving away 00:28:38.589 --> 00:28:41.140 the premium for free. You're giving away your 00:28:41.140 --> 00:28:44.359 genetic progress. If you are a high -component 00:28:44.359 --> 00:28:47.519 herd, shifting to a flat -priced retail model 00:28:47.519 --> 00:28:50.099 might actually lower your effective price per 00:28:50.099 --> 00:28:52.980 pound of solids. The cheese plant pays you for 00:28:52.980 --> 00:28:54.839 that extra protein. The doorstep customer probably 00:28:54.839 --> 00:28:56.660 doesn't even notice it. Unless you have a truly 00:28:56.660 --> 00:28:59.680 niche product. Right. That's the exception that 00:28:59.680 --> 00:29:02.759 proves the rule. Look at Mark at Promise Valley 00:29:02.759 --> 00:29:04.759 on Vancouver Island, who the article mentioned. 00:29:05.200 --> 00:29:10.140 He has an A2A2 Guernsey herd. Now that is a specific 00:29:10.140 --> 00:29:12.839 product. Guernsey's give that golden colored 00:29:12.839 --> 00:29:16.900 milk, super high fat, A2A2. It is visibly different 00:29:16.900 --> 00:29:19.680 in the glass. It tastes different. It has a story. 00:29:19.880 --> 00:29:22.559 He processes it all on farm and it works. The 00:29:22.559 --> 00:29:25.099 niche product warrants the retail effort because 00:29:25.099 --> 00:29:27.140 the customer can see and taste the difference 00:29:27.140 --> 00:29:29.119 and they'll pay a significant premium for it. 00:29:29.200 --> 00:29:31.619 But if you are just putting standard Holstein 00:29:31.619 --> 00:29:34.440 milk in a bottle, you might be better off. taking 00:29:34.440 --> 00:29:36.720 the component check from the co -op, and focusing 00:29:36.720 --> 00:29:38.599 on what you're good at, making high -quality 00:29:38.599 --> 00:29:41.220 milk efficiently. That is a massive point. If 00:29:41.220 --> 00:29:43.440 you are generic but doing it yourself, you are 00:29:43.440 --> 00:29:45.319 working harder to give away your breeding advantage. 00:29:45.700 --> 00:29:48.119 You're effectively devaluing your own genetic 00:29:48.119 --> 00:29:50.880 progress. You spent 20 years breeding for protein, 00:29:50.980 --> 00:29:52.700 and now you're selling it to people who don't 00:29:52.700 --> 00:29:55.140 care and won't pay for it. Third take, and this 00:29:55.140 --> 00:29:57.059 is a big one, price ceilings versus freedom. 00:29:57.640 --> 00:30:00.160 Quills was on the Isle of Man. The government 00:30:00.160 --> 00:30:03.490 sets the price. 90 pence per pint. They couldn't 00:30:03.490 --> 00:30:06.029 raise prices to cover their rising fuel and labor 00:30:06.029 --> 00:30:07.970 costs. Which is a complete nightmare. It's a 00:30:07.970 --> 00:30:10.269 regulated utility at that point, not a business. 00:30:10.569 --> 00:30:12.930 But here in North America, we have pricing freedom. 00:30:13.069 --> 00:30:14.690 We can charge whatever we want. If I want to 00:30:14.690 --> 00:30:17.950 charge $10 a gallon for my milk, I can. In theory. 00:30:18.190 --> 00:30:20.750 But do you? Well, no. You have to stay competitive 00:30:20.750 --> 00:30:23.119 with the grocery store. Or at least that's what 00:30:23.119 --> 00:30:24.980 we tell ourselves. We look at Walmart's price 00:30:24.980 --> 00:30:27.119 and say, I can't be double that. No one will 00:30:27.119 --> 00:30:30.000 buy it. And there is the trap. If you only charge 00:30:30.000 --> 00:30:32.599 a dollar more than the grocery store, are you 00:30:32.599 --> 00:30:35.299 really covering that unpaid family labor we talked 00:30:35.299 --> 00:30:39.099 about? Are you covering the depreciation on the 00:30:39.099 --> 00:30:42.440 bottler, the insurance on the van? Probably not. 00:30:42.579 --> 00:30:44.900 So pricing freedom is an illusion if your costs 00:30:44.900 --> 00:30:47.900 are out of control or if you're too scared to 00:30:47.900 --> 00:30:50.089 charge what your product is actually worth. You 00:30:50.089 --> 00:30:52.750 end up self -regulating your price down to stay 00:30:52.750 --> 00:30:55.509 competitive and you cannibalize your own margin. 00:30:55.670 --> 00:30:58.329 You become your own worst regulator. You are 00:30:58.329 --> 00:31:01.130 so scared to charge the real cost of the milk 00:31:01.130 --> 00:31:03.769 that you end up subsidizing the customer with 00:31:03.769 --> 00:31:06.230 your own sweat and your family's time. It's heavy 00:31:06.230 --> 00:31:08.650 stuff. It really makes you rethink the whole 00:31:08.650 --> 00:31:11.509 farm to table dream. It's not that it's a bad 00:31:11.509 --> 00:31:13.829 dream. It's just that the math is unforgiving. 00:31:13.950 --> 00:31:16.599 The math is neutral. It doesn't care about your 00:31:16.599 --> 00:31:18.420 dreams. It doesn't care about your grandfather's 00:31:18.420 --> 00:31:21.200 legacy. It only cares about the ratio. Is the 00:31:21.200 --> 00:31:24.019 enterprise profitable or not? So let's boil this 00:31:24.019 --> 00:31:26.759 down. I'm a farmer. I'm driving to the feed store 00:31:26.759 --> 00:31:28.819 right now. Just finished listening to this. What 00:31:28.819 --> 00:31:31.019 do I need to do? Give me the actionable drill 00:31:31.019 --> 00:31:32.579 down. All right, hit me. What's the immediate 00:31:32.579 --> 00:31:35.440 action? What do I do this week? This week, calculate 00:31:35.440 --> 00:31:37.880 your unpaid labor subsidy. Okay, how do I do 00:31:37.880 --> 00:31:40.200 that? Break it down. Sit down tonight with a 00:31:40.200 --> 00:31:42.819 notepad. Look at the hours you and your family 00:31:42.819 --> 00:31:46.319 spend on the retail side. Everything. Processing, 00:31:46.319 --> 00:31:48.839 bottling, cleaning, delivering, invoicing, chasing 00:31:48.839 --> 00:31:52.839 down payments. All of it. Then assign a real 00:31:52.839 --> 00:31:55.359 market rate to that time. What would you have 00:31:55.359 --> 00:31:58.839 to pay a stranger? $20 an hour. $25. Whatever 00:31:58.839 --> 00:32:01.660 a reliable relief worker costs in your area. 00:32:01.880 --> 00:32:04.200 That number is going to be scary big. I can tell 00:32:04.200 --> 00:32:06.759 you that right now. Calculate it. Then look at 00:32:06.759 --> 00:32:09.200 your retail profit and loss statement. If the 00:32:09.200 --> 00:32:11.500 profit from the bottles cannot cover that hypothetical 00:32:11.500 --> 00:32:14.970 labor cost, you are losing money. Period. You 00:32:14.970 --> 00:32:17.490 are paying for the privilege of delivering milk. 00:32:17.650 --> 00:32:19.690 You have to stop lying to yourself about the 00:32:19.690 --> 00:32:21.930 profitability. If you wouldn't do that job for 00:32:21.930 --> 00:32:24.190 a stranger for that wage, why are you doing it 00:32:24.190 --> 00:32:26.410 for yourself? Wow. Okay. That's a hard look in 00:32:26.410 --> 00:32:27.990 the mirror. What's the medium -term strategy, 00:32:28.170 --> 00:32:30.670 say, three to six months out? Year eight audit. 00:32:30.849 --> 00:32:32.309 This relates to the equipment life you mentioned 00:32:32.309 --> 00:32:36.250 earlier. Yes. Most bottling lines, pasteurizers, 00:32:36.289 --> 00:32:38.950 fillers. They have about a 12 -year effective 00:32:38.950 --> 00:32:42.079 service life. Before maintenance costs just explode 00:32:42.079 --> 00:32:44.640 and reliability tanks. Go out to the plant and 00:32:44.640 --> 00:32:46.579 check the age on your key pieces of equipment. 00:32:47.000 --> 00:32:49.559 If anything has passed year eight, you are officially 00:32:49.559 --> 00:32:52.039 in the red zone. You need a plan. You can't just 00:32:52.039 --> 00:32:53.599 cross your fingers and hope it keeps running. 00:32:53.759 --> 00:32:56.000 You need to start planning the exit or the upgrade 00:32:56.000 --> 00:32:58.960 and now W. Do not wait for the breakdown at two 00:32:58.960 --> 00:33:01.279 in the morning. If you're at year nine, you have 00:33:01.279 --> 00:33:03.759 three years to save the cash for a full replacement. 00:33:04.299 --> 00:33:06.480 If that cash isn't already being set aside in 00:33:06.480 --> 00:33:08.539 a separate account, you have a crisis coming. 00:33:09.069 --> 00:33:11.470 You need to know if you are winding down this 00:33:11.470 --> 00:33:14.170 enterprise or gearing up for a major reinvestment. 00:33:14.250 --> 00:33:17.470 Got it. Don't let the machine decide your future. 00:33:17.650 --> 00:33:20.430 You decide. So what's the long -term plan, one 00:33:20.430 --> 00:33:23.150 to two years out? A 30 % threshold. This is that 00:33:23.150 --> 00:33:26.170 retail ratio you talked about. Exactly. Look 00:33:26.170 --> 00:33:28.410 at your growth plan for the farm. If you are 00:33:28.410 --> 00:33:31.509 planning on adding cows, you are likely diluting 00:33:31.509 --> 00:33:44.160 your retail ratio. So if adding cows pushes your 00:33:44.160 --> 00:33:47.660 retail ratio below 30 percent, meaning less than 00:33:47.660 --> 00:33:49.980 30 % of your total milk is going into your own 00:33:49.980 --> 00:33:53.000 bottles, you are in the danger zone. You are 00:33:53.000 --> 00:33:55.440 Coyle's dairy. You are drifting into inefficiency. 00:33:55.440 --> 00:33:58.420 You have two clear choices at that point. Either 00:33:58.420 --> 00:34:00.900 shrink the herd to match the retail demand and 00:34:00.900 --> 00:34:04.000 go all in like Cronk Allen, or drop the retail 00:34:04.000 --> 00:34:06.279 side completely to focus on running an efficient 00:34:06.279 --> 00:34:08.920 wholesale herd like Coyle's and Clark Farms did. 00:34:09.079 --> 00:34:10.900 Do not straddle the fence. Because the middle 00:34:10.900 --> 00:34:12.780 of the road is where you get run over. The middle 00:34:12.780 --> 00:34:14.500 is where you get crushed. You know, despite the 00:34:14.500 --> 00:34:17.300 sadness of seeing a 75, year brand come to an 00:34:17.300 --> 00:34:19.619 end, I actually find this story really encouraging. 00:34:19.860 --> 00:34:22.760 How so? That's interesting. Because Coyle's Dairy 00:34:22.760 --> 00:34:25.280 didn't crash and burn. They didn't lose the farm. 00:34:25.440 --> 00:34:28.280 They didn't go bankrupt. They are still milking 00:34:28.280 --> 00:34:32.420 120 cows tomorrow morning. Juan is still a farmer. 00:34:32.960 --> 00:34:35.320 Kirstie is still running the business. They just 00:34:35.320 --> 00:34:38.000 made a tough strategic decision to cut off the 00:34:38.000 --> 00:34:40.760 limb that was threatening the body. They saved 00:34:40.760 --> 00:34:43.659 the core business. That is the definition of 00:34:43.659 --> 00:34:46.280 a success story in my book. Survival and adaptation. 00:34:46.880 --> 00:34:49.860 It takes way more courage to stop something and 00:34:49.860 --> 00:34:52.380 pivot than it does to just keep going blindly 00:34:52.380 --> 00:34:54.719 down a path because of tradition. And being able 00:34:54.719 --> 00:34:57.059 to see your kids. Being home for dinner. And 00:34:57.059 --> 00:34:58.739 getting more than four hours of sleep a night. 00:34:58.900 --> 00:35:01.420 Amen to that. That's worth more than any premium 00:35:01.420 --> 00:35:04.059 on a bottle of milk. So check your ratio. Do 00:35:04.059 --> 00:35:06.559 the hard math. Don't let sentimentality or pride 00:35:06.559 --> 00:35:09.150 drive your business into the ground. This has 00:35:09.150 --> 00:35:11.510 been another Bullvine podcast from the Bullvine 00:35:11.510 --> 00:35:14.289 podcast. For more street talking industry analysis, 00:35:14.489 --> 00:35:19.250 head to www .thebullvine .com. Subscribe wherever 00:35:19.250 --> 00:35:22.130 you get your podcasts. We're out with new episodes 00:35:22.130 --> 00:35:25.690 every day and upcoming topics will be. Well, 00:35:25.849 --> 00:35:28.289 we're going to look at the hidden costs of transition 00:35:28.289 --> 00:35:30.989 cow mismanagement. Another place where money 00:35:30.989 --> 00:35:33.110 just silently leaks out of the bucket. Always 00:35:33.110 --> 00:35:34.969 something to fix. Thanks for listening. See you 00:35:34.969 --> 00:35:35.250 next time.