Goat cheese or milk at a small dairy
A Maltese goat farm milks 70 Saanen goats, averaging 2.8 litres/day over a 250-day lactation, and sells all milk to a cooperative at €0.95/litre. Milk production costs are €0.62/litre variable and €30,000/year fixed. The family is considering making fresh cheese on farm. A small pasteuriser and cheese vat would cost €26,000, financed over five years at 5%. The yield is 5.5 litres of milk per kg of fresh cheese, which can be sold wholesale at €14/kg. Processing uses 0.12 hours of labour per kg at €13/hour, packaging €0.80/kg, extra energy €0.35/kg, annual testing and certification €2,400, and whey disposal at €0.02 per litre of milk processed. Local delicatessens indicate they would take at most 6,000 kg of cheese a year at €14/kg; beyond that the price would fall.
1. Calculate the annual milk output, the profit or loss from selling all milk, and the profit if 33,000 litres are processed into 6,000 kg of cheese and the rest is sold as milk. Include the loan repayment.
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Annual milk = 70 × 2.8 × 250 = 49,000 litres.
Sell all milk: revenue = 49,000 × €0.95 = €46,550. Variable cost = 49,000 × €0.62 = €30,380. Fixed cost = €30,000. Result = 46,550 − 30,380 − 30,000 = −€13,830.
Process 33,000 L into 6,000 kg cheese: cheese revenue = 6,000 × €14 = €84,000; remaining milk = 16,000 × €0.95 = €15,200; total revenue = €99,200.
Processing costs: labour 6,000 × 0.12 × €13 = €9,360; packaging 6,000 × €0.80 = €4,800; energy 6,000 × €0.35 = €2,100; testing €2,400; whey 33,000 × €0.02 = €660. Subtotal = €19,320.
Loan annuity: €26,000 × [0.05/(1−1.05^−5)] = €26,000 × 0.23097 = €6,005/year.
Total costs = €30,380 + €19,320 + €30,000 + €6,005 = €85,705. Profit = 99,200 − 85,705 = €13,495.
The cheese plan turns a loss into a modest profit, but it depends on selling the full 6,000 kg at €14/kg.
2. Calculate the break-even volume of cheese needed to cover the additional processing and finance costs relative to selling the milk, and comment on the margin of safety.
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Incremental analysis: each kg of cheese replaces 5.5 L of milk. Lost milk revenue = 5.5 × €0.95 = €5.225. Cheese revenue = €14.00. Incremental revenue = €8.775/kg.
Incremental variable cost per kg = labour €1.56 + packaging €0.80 + energy €0.35 + whey (5.5 × €0.02 = €0.11) = €2.82. Contribution = €8.775 − €2.82 = €5.955/kg.
Fixed additions = testing €2,400 + loan €6,005 = €8,405/year. Break-even = €8,405 / €5.955 = 1,411 kg/year.
At 6,000 kg, margin of safety = (6,000 − 1,411)/6,000 = 76.5%. That looks comfortable, but the break-even assumes the milk can always be sold at €0.95 and the cheese at €14. If the cooperative price falls or the delicatessens cut orders, the safety margin shrinks. It also assumes family labour is available; if hired labour is needed, the break-even rises.
3. Discuss two food-safety risks and two market risks of the cheese plan, and recommend controls.
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Food-safety risks: listeria and E. coli in soft fresh cheese; inadequate pasteurisation or a broken cold chain. Controls: validated pasteurisation records, environmental swabbing, separate raw/pasteurised areas, daily pH and temperature logs, staff training, traceability and a recall procedure. Fresh cheese should be sold chilled and within a defined shelf life.
Market risks: 6,000 kg is a narrow outlet; a single delicatessen chain could switch to imported cheese; price competition from larger dairies. Controls: written supply contracts, a second outlet such as a farm shop, restaurants or a box scheme, a small product range with frozen storage, and a staged launch (e.g. 3,000 kg in year 1).
Financial trigger: at 6,000 kg, the cheese price needed to cover the added fixed costs is €5.225 + €2.82 + (€8,405/6,000 = €1.401) = €9.45/kg. If the wholesale price stays below about €9.45/kg, revert to milk sales or reduce the processing scale.