Milking 1,500 cows in a dairy franchise - New Zealand style adapted to Irish conditions

A series of farm partnerships, run under the banner of Captal farms, is now milking 1,500 cows on four farms and has ambitious plans for the future.

While the operations are operated under farm partnerships the business would be better described in some respects as a ‘franchise’.

Co-Founders Pat Ryan and John Condon have driven the business since 2006 and stress that the system is about co-operative farming and about farmers being practical about their individual situations.

The evolution of the model stems to a large degree from Ryan’s belief in his own stock and his unwillingness to sell them cheap.

“I had the stock and I didn’t want to waste them,” he stressed. Ryan’s philosophy on dairy farming could be best described as the New Zealand model adapted to an Irish environment.

And, it is this model which is replicated across all the sites involved in the Captal operation.

Pat Ryan

“Instead of selling stock to other people we have brought the stock to the table – good quality stock and said ‘look will you buy into this management system and we will put in the stock and get a percentage of the profit?’

“That has been the model and it works,” says Ryan.

How did it all start?

It all originated from a milk production partnership, according to Ryan who farms with his wife Pauline in Cappagh outside Dungarvan, Co. Waterford.

“We were at 200 cows here on the home farm for a good number of years, more or less since quotas came in. In 2005, we started to look at different options to expand and move our business forward.

“The milk production partnerships came into being in the early 2000s. So it meant two farmers could put their milk quotas together and work off one unit.

“So we did a couple of ‘dates’ with a couple of farmers on a milk production partnership.

“John Condon and ourselves, were in discussions for over a year. It was a leap of faith for both of us.

“He was living on the edge of the town which was making the sustainability of running a milking parlour more difficult.

“He looked after the young stock and bought into the section of the herd on my farm.

“That is what started us off,” Ryan says.

He said it allowed the business to grow by another 100 cows because they now had the land block and were able to get rid of the young stock from the farm and focus on milking cows.

“That was the first leg and went on for a good number of years and worked very well. We saw the benefits of just streamlined milking cows here and it suited John’s circumstances as well.

“We had good quality stock on the farm and that’s backed up by us having won the first EBI herd competition in 2005.

“As part of the deal, John had to sell all of his stock and buy into our breeding, we had enough animals to spare to fill the two milk quotas at the time.

“2007 was a good milk price and we really saw the benefits,” Ryan said.

Captal 2

The high milk price didn’t last long, Ryan says and highlights that 2009 was an even worse year than this year for milk prices.

“At that stage we were still building stock and it looked like milk quotas were gone.

“So we set up with another guy Brian Ronayne in Dungourney.

“Brian was in Partnership in another business so he could fully appreciate the benefits of the concept.

“We had 130 cows to spare at the time and we were in a profit sharing joint venture there with all three of us – John, Brian and myself.

“John and I were going in at the same ratios as we were here. We were one entity then in effect so now there was then two entities.

Ryan notes that 2010 saw a big rebound in milk prices and quotas were back on the agenda.

“We did a lot of Partnership dating at that point in time”

“At that stage we had stocked Brian’s up to 300 cows and we were at 400 here.”

Captal 3

Ryan explains that it was by chance when somebody that wanted to rear youngstock for the group gave him the name of its fourth partner – Andrew Claxton.

We approached Andrew and things went well. Andrew started in the partnership in 2012.

“We were keeping all the stock from our original herd and we were rolling up.

“Milk price being good at that time helped it,” Ryan admits.

“We got a nasty superlevy hit in the last year, but prior to that, we had escaped reasonably well.

“As the numbers of cows are growing, the number of replacements are increasing also so we have tried to find homes for them.”

New Ross

Just last year, Ryan became involved with his fourth farm.

The team has started another partnership in New Ross last year again all the stock has come from the original herd.

Challenges

According to Ryan, figuring out a way to stop a guy from keeping doing what he’s been doing for years is one of the big challenges.

“Converting a guy already farming to our model.

“In Andrew’s case, he was in beef farming. To re-tune him into dairying I personally went down every week and we discussed out things and he could probably teach me at this stage.

A different example is in New Ross where we are providing the labour.

The System

Our philosophy is simple really, according to Ryan.

“It would be low/medium cost – medium output model. In other words, we wouldn’t be overly excessive on the production side.

“We graze tight. We follow all the best principals of grassland management but also like to ensure the cow is fully fed as much of the time as possible.

“It’s really the New Zealand model customised to the Irish environment. We have to have the indoor period.

“We have a great love of cows. So we mind our cows,” he said.

“Our system is about turning grazed grass into milk. That’s what profit is in my view. But we respect the cow in the middle too.”

Breeding

LIC and New Zealand genetics play a key role in the breeding strategy of both the Ryan’s home farm and all the Captal operations.

Again, Ryan cites his experiences in New Zealand as the key driver in his decision to go down this route.

“When I saw in New Zealand the kind of milk solids they were getting there. It was obvious that the less water you have and the more constituents the better the direction you are heading in.

“Coupled with that then, the fertility of crossbred stock made it a no-brainer for me,” he said.

Ryan also notes that there are parts of his farm that are wet and the smaller cow type have been a significant advantage for them.

“I find they forage better too and are a much hardier animal.

“The New Zealand breeding just makes it easier to manage more cows on an easy care system,” he said.

Ryan outlined that his ideal cow has a mature weight of 500kg and is able to produce 500kg of milk solids on 500 to 600 kgs of meal. This is equivalent to 1500 kg milk solids per Hectare on the Milking Platform.

“LIC is on the grazing system god knows how long. Nearly all the top bulls in this country have come through the New Zealand stable.

Ryan said he has seen a host of key benefits from going down the crossbred New Zealand route and it’s a decision which has both made his life easier and benefited his bottom line.

Management

From a management perspective, Ryan says the Captal operations function separately from each other. Each farm makes day to day management decisions in their own right within the overarching model of the business.

However, the Captal farms do have monthly meetings to coordinate the direction of the businesses.

“We would like to follow a blueprint but there is some level of individual autonomy.

All assets are valued on an annual rental amount and ratios are then divided according to precentage of assets owned.

Example

Farmer A owns 250 acres, 100cows

Farmer B owns 200 cows

Rental Valuation- Farmer A per annum

250 acres X €200/acre = €50,000
Parlour + Farm Buildings =€400,000 X 7% over 15 years = €28,000

100 cows X €200/cow = €20,000

Farmer A total Value of assets = €98,000

Rental Valuation – Farmer B per annum

200 cows X €200/cow = €40,000

Farmer B total Value of assets = €40,000

Total value of assets = €98,000 + €40,000 = €138,000

Profit/Loss sharing Ratios are:

Farmer A €98,000/€138,000 = 71%
Farmer B €40,000/€138,000= 29 %

Notes:

1. Livestock are owned as a % of all stock not individual animals[where applicable]
2. Bull calves born are sold at farm ratios and heifer calves born are owned at stock owners ratios

Franchise dream

Ryan says the dream for him is to see the business move towards a franchise model.

Where there would be slightly less autonomy with all the farms following a specific blueprint.

“We are operating with land owners. It’s their land. We have only a small percentage of the overall equity. So a certain level of autonomy is a must and is understandable.

“We tell our partners that the stock will do the business if you manage them in a set way.

“We know what the stock can do,” he said.

Who is suited to the model?

According to Ryan, an ideal situation is where you would have a land owner, Captal with the expertise and the cows and potentially a young farmer who maybe doesn’t have the option to farm at home or is not from a farm.

This young farmer has enthusiasm, an acceptance that questions haven’t become answers, a willingness to learn and has the opportunity to grow their Net Worth through owning dairy Stock that might not be available to them in many other jobs in other industries.

“This would be a way they could get into the industry,” Ryan said.

At the end of the period of the partnership say 10 years the contract has a built in exit process.
In theory, under the arrangement, a farmer that is thinking of getting into dairy but doesn’t have the capital or the land or expertise can get involved with Captal and at the end of the period exit the partnership with cows, a milking platform, facilities, and crucially the knowledge to run a successful dairy business.

“Furthermore, their bank manager will buy that story a lot easier than somebody taking a chance as an individual,” Ryan said.

Ryan said the group is looking for land owners with a good block of land and somebody that wants a turn key solution.

“We have 200 of our cows up and ready to get running. But the person has to be willing to work with the system.”

Ideal Partner

According to Ryan potential partners need to have a large-scale farm 100ha. He says when you start dividing up the profits of the farm, 100 cows is not sufficient.

“It has to be 200 plus to make it work,” he says.

In terms of a land block Ryan says 100ha would be a good benchmark, not necessarily owned by one individual.

The farm doesn’t necessarily need to have milking facilities either Ryan says. In New Ross, Captal split the cost as part of the agreement.

But in general, Ryan says Captal is not looking for greenfield sites unless the owner is willing to put in the capital.

“We see ourselves as an interim solution for somebody to get up and going in their own business.

Depending on what we put in, we will be in there for 5-10-15 years.

“In our view, and statistically it is well proven that a business has a much greater chance of success by working with a proven system. Rather than a person starting off on their own and not knowing whether they are right or wrong.

It can be very easy for a sole-trader business to be run according to what the owner wants rather than what the business needs” he said.

Values

Honest fair people who like to work as part of a team while retaining some of their farming autonomy [on their own farm]
People who buy into the farming model as proposed above.
People who are adaptable to change
People who aspire to high standards
People with a positive outlook
People who are doers more than talkers

Skills needed within the Captal team

Follow a grazing protocol that will grow high tonnages of grass with good utilisation by high EBI stock
Good stock people
Information Communications Technology [ICT]
Interpersonal
Networking
Leaders to share the farm management skills in a people friendly manner
Farm Business
NB Each individual will not be strong in all these areas, but it is to identify where you are strong, so you know what you bring to the table

Ryan stresses that there is a huge amount of trust required between both sides and it takes a period of time to build that relationship.

“It’s not an overnight thing, it takes up to six months to get to know a potential partner,” he said.

Home farm

Ryan took over the farm from his parents in the late 1990s having worked on the farm for the majority of his life before that.

His parents James and Theresa were in dairying and according to Ryan were ‘ a very progressive couple’ milking 200 cows in 1983 prior to the introduction of quotas.

“There was good milk prices for the 80s so we were all humming then. A period of stagnation followed then and I suppose I woke up at that point.

“When I took over I found quotas a huge frustration. Every farmer wants to leave their mark when they take over, but quotas meant nothing was happing.

“I would be ambitious in that respect. The Milk Production Partnerships opened up opportunities for me.

“I have learned that one can achieve much more working with people”

Ryan says time spent visiting New Zealand has influenced the way he farms today.

Although I didn’t think it at the time what I saw there definitely stuck with me.

The Ryans are set to calve down 500 cows on the home farm this year on a 160ha block of land. All the heifers are reared off site and the many of the dry cows also spend the winter off the farm.

Farm facts