Question: I have a dairy farm in the west and given costs and the milk price recently, it has been a struggle. I recently visited another dairy farm as part of a farmer group, in Northern Ireland, and the farm started producing its own ice cream a few years ago. They said that business is going very well and it has now led to them having a farm shop. We like the idea of having something like this on our farm. What do we need to think about if we want to do it?
Answer: Many dairy farmers are now exploring diversification. An on-farm ice cream and farm produce shop can work very well, but it is a very different business to dairy farming. The level of planning and investment should not be underestimated.
Ice cream production is more than a side business. While the milk comes from your own farm, ice cream production is a manufacturing and retail business. It brings food safety, marketing, staffing and compliance into the mix.
A good first step is to ask: why do we want to do this? The answer to this question may be to improve your overall income, to provide a job for a family member or to simply diversify your income. That answer will shape the scale of the venture and the investment required.
You cannot be the master of all trades. A dairy farm is demanding of your time and so you need to be realistic about who will undertake the management of the ice cream production and the running of the farm shop. Even an honesty-box farm shop requires daily cleaning and stocking.
Startup costs
This is usually where enthusiasm meets reality. Typical startup costs can include:
• Ice cream equipment (pasteuriser, batch freezer, blast freezer).
• Cold rooms and storage.
• Fit-out of a production area to food-grade standard.
• Packaging, labelling and branding.
• Farm shop cabin and fit-out.
• Professional fees (financial projections and business plan, food consultant, planning where required).
Total costs will depend on several factors above. A modest estimate for a farmhouse ice cream business would be €120,000 to €150,000. Significant building works can push costs higher.
A robust business plan
Before spending a euro, you need a business plan with financial projections. This should include:
• Expected sales volumes.
• Selling prices and margins.
• Cost of milk from the farm.
• Staffing costs (including family).
• Utilities, insurance and repair costs.
• Marketing costs.
• Loan repayments and interest.
• Potential exposure to VAT.
The projections should show monthly cash flow, not just annual profit. Ice cream sales can be seasonal, while loan repayments and overheads are not.
VAT and business structure
VAT can make or break cash flow. Ice cream and retail sales are VAT-able, while most farm outputs are not. This means you could move from a non-VAT-registered position into regular VAT returns and payments. It could also have an impact on your farm if both trades were deemed to be the one business. It is possible that your farm is already in a company or partnership structure and so you should seek further advice on the optimal structure.
In many cases, it makes sense to operate the ice cream business in a separate legal structure. This can help with VAT clarity, cost separation and risk management. Do note that this also brings additional compliance costs, which do need to be considered. Early advice is essential here. The wrong structure can cost you far more than the professional fee you tried to save.
Think about funding and risk
You mentioned that dairy farming has been a struggle recently, due to falling milk prices. Adding an ice cream business/farm shop into the equation will add to that struggle, initially. You may have the cash resources to fund the initial investment, however, if you do not, you will need to factor in the potential struggle to make loan repayments if sales are slow to build.
There are some potential grants available to help with the initial investment. LEADER offer up to 75% grants on capital projects and 90% for analysis and feasibility support. It is also very beneficial to contact your local LEO office and seek their advice.
Andrew Brolly is fractional cfo with ifac, which is the professional services firm for farming, food and agribusiness.
- One of the biggest pitfalls is under-pricing. Milk transferred from the farm into the ice cream business must be priced properly. If the farm supplies milk ‘at whatever price’ you will never know if the ice cream business is actually profitable. Your farm will also suffer as it could potentially have achieved more per litre if sold to your current milk processer.
- You need to know the true cost per litre of milk, the cost per litre of ice cream produced, and the margin per unit sold to break down how to get started.
Question: I have a dairy farm in the west and given costs and the milk price recently, it has been a struggle. I recently visited another dairy farm as part of a farmer group, in Northern Ireland, and the farm started producing its own ice cream a few years ago. They said that business is going very well and it has now led to them having a farm shop. We like the idea of having something like this on our farm. What do we need to think about if we want to do it?
Answer: Many dairy farmers are now exploring diversification. An on-farm ice cream and farm produce shop can work very well, but it is a very different business to dairy farming. The level of planning and investment should not be underestimated.
Ice cream production is more than a side business. While the milk comes from your own farm, ice cream production is a manufacturing and retail business. It brings food safety, marketing, staffing and compliance into the mix.
A good first step is to ask: why do we want to do this? The answer to this question may be to improve your overall income, to provide a job for a family member or to simply diversify your income. That answer will shape the scale of the venture and the investment required.
You cannot be the master of all trades. A dairy farm is demanding of your time and so you need to be realistic about who will undertake the management of the ice cream production and the running of the farm shop. Even an honesty-box farm shop requires daily cleaning and stocking.
Startup costs
This is usually where enthusiasm meets reality. Typical startup costs can include:
• Ice cream equipment (pasteuriser, batch freezer, blast freezer).
• Cold rooms and storage.
• Fit-out of a production area to food-grade standard.
• Packaging, labelling and branding.
• Farm shop cabin and fit-out.
• Professional fees (financial projections and business plan, food consultant, planning where required).
Total costs will depend on several factors above. A modest estimate for a farmhouse ice cream business would be €120,000 to €150,000. Significant building works can push costs higher.
A robust business plan
Before spending a euro, you need a business plan with financial projections. This should include:
• Expected sales volumes.
• Selling prices and margins.
• Cost of milk from the farm.
• Staffing costs (including family).
• Utilities, insurance and repair costs.
• Marketing costs.
• Loan repayments and interest.
• Potential exposure to VAT.
The projections should show monthly cash flow, not just annual profit. Ice cream sales can be seasonal, while loan repayments and overheads are not.
VAT and business structure
VAT can make or break cash flow. Ice cream and retail sales are VAT-able, while most farm outputs are not. This means you could move from a non-VAT-registered position into regular VAT returns and payments. It could also have an impact on your farm if both trades were deemed to be the one business. It is possible that your farm is already in a company or partnership structure and so you should seek further advice on the optimal structure.
In many cases, it makes sense to operate the ice cream business in a separate legal structure. This can help with VAT clarity, cost separation and risk management. Do note that this also brings additional compliance costs, which do need to be considered. Early advice is essential here. The wrong structure can cost you far more than the professional fee you tried to save.
Think about funding and risk
You mentioned that dairy farming has been a struggle recently, due to falling milk prices. Adding an ice cream business/farm shop into the equation will add to that struggle, initially. You may have the cash resources to fund the initial investment, however, if you do not, you will need to factor in the potential struggle to make loan repayments if sales are slow to build.
There are some potential grants available to help with the initial investment. LEADER offer up to 75% grants on capital projects and 90% for analysis and feasibility support. It is also very beneficial to contact your local LEO office and seek their advice.
Andrew Brolly is fractional cfo with ifac, which is the professional services firm for farming, food and agribusiness.
- One of the biggest pitfalls is under-pricing. Milk transferred from the farm into the ice cream business must be priced properly. If the farm supplies milk ‘at whatever price’ you will never know if the ice cream business is actually profitable. Your farm will also suffer as it could potentially have achieved more per litre if sold to your current milk processer.
- You need to know the true cost per litre of milk, the cost per litre of ice cream produced, and the margin per unit sold to break down how to get started.
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