Some farmers are considering diversifying pro- duction to include several species of livestock on their farms. This may be beneficial from a marketing, production, and financial stand- point, particularly if you are selling directly to customers. Customers who buy your beef are also likely to purchase poultry, pork, and lamb from you. By diversifying, you may be able to better uti- lize your land, building, machinery, fencing, labor, and capital resources in your production processes. It may also help you reduce risk, increase profits, and improve cash flow. The purpose of this fact sheet is to introduce you to some of the ad- vantages of diversified livestock production and to illustrate a spreadsheet that will help you plan your production and analyze the profit potential of diversifying. Marketing advantages of diversified livestock farming The phenomenal growth in the number of farm- ers’ markets and direct sales from farmers to con- sumers can be attributed in part to the increased diversity of products farmers now offer. While fresh fruits and vegetables are still the primary products, many farmers now offer meat, dairy, and other livestock products for direct sale. Consumers want variety in their food purchasing choices. They also prefer the convenience of pur- chasing multiple items at one stop. These pur- chasing behaviors are in response to two well es- tablished methods for improving sales and in- creasing customer loyalty - up-selling and cross- selling. Up-selling is the practice of offering customers products in addition to the product they are Diversified Livestock Farming FACT SHEET 928
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Some farmers are considering diversifying pro-
duction to include several species of livestock
on their farms. This may be beneficial from a
marketing, production, and financial stand-
point, particularly if you are selling directly to
customers.
Customers who buy your beef are also likely
to purchase poultry, pork, and lamb from you.
By diversifying, you may be able to better uti-
lize your land, building, machinery, fencing,
labor, and capital resources in your production
processes.
It may also help you reduce risk, increase profits,
and improve cash flow. The purpose of this fact
sheet is to introduce you to some of the ad-
vantages of diversified livestock production and
to illustrate a spreadsheet that will help you plan
your production and analyze the profit potential
of diversifying.
Marketing advantages of diversified livestock
farming
The phenomenal growth in the number of farm-
ers’ markets and direct sales from farmers to con-
sumers can be attributed in part to the increased
diversity of products farmers now offer. While
fresh fruits and vegetables are still the primary
products, many farmers now offer meat, dairy,
and other livestock products for direct sale.
Consumers want variety in their food purchasing
choices. They also prefer the convenience of pur-
chasing multiple items at one stop. These pur-
chasing behaviors are in response to two well es-
tablished methods for improving sales and in-
creasing customer loyalty - up-selling and cross-
selling.
Up-selling is the practice of offering customers
products in addition to the product they are
Diversified Livestock Farming
FACT SHEET 928
2
currently purchasing. You may have customers
who are currently purchasing your beef but might
also purchase pork and chicken if the products are
available and they can do so all in the same trans-
action. Think of this as “filling their cart”.
Cross-selling is similar to Up-selling but it refers
to selling items that are closely related or can be
integrated with the other items being sold, for ex-
ample, offering eggs paired with bacon and ham.
If you are selling holiday turkeys, you might also
offer sausage for the dressing and a leg of lamb to
upscale the holiday feast. Your hamburger can be
paired with hotdogs or steaks can be paired with
pork chops for barbecues. Both up-selling and
cross-selling can increase sales volumes and pro-
vide a valuable service to your customers.
Offering your customers a diversity of products
can also help you differentiate yourself in the
marketplace from other farmers who are offering
only one species of meat products. Other attrib-
utes that you may use to differentiate your prod-
ucts include:
How it’s grown: Customers are looking for
specific production methods such as grass-
fed, cage-free, free range, organic, natural, or
a third-party certification designation.
How it is presented: Customers can be attract-
ed through unique processing methods, pack-
aging design, package sizes, labels, and addi-
tional value-added processing.
Where it can be purchased: Customers can be
increased through diversifying market chan-
nels such as on-farm sales, farmers markets,
Community Supported Agriculture, institu-
tional sales, cooperative marketing groups,
and retail food stores.
You should develop a separate marketing plan for
each species so that marketing resources such as
transportation, storage and freezer space, packag-
ing and promotional costs, regulations and licens-
ing fees, and marketing labor can be allocated
efficiently.
Marketing materials should tell your “story” as a
whole but also address each species separately.
Brochures and websites should inform your cus-
tomers about the advantages of purchasing multi-
ple products from you in one transaction.
Production advantages of diversified livestock
farming
From a production standpoint, there are many ad-
vantages of a diversified livestock operation. Pro-
ducing more than one species can have a syner-
gistic effect. That is, you can increase total pro-
duction through diversifying beyond what you
could produce through specializing on one spe-
cies. Overall production can be increased on fixed
land, fencing, building, machinery, labor, and
capital resources or only a modest increase in the-
se resources.
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In grazing, the various animal species prefer dif-
ferent plant species, so that grass and broadleaf
plant populations as a whole are better utilized
across the growing season. Beef cattle can be fol-
lowed by poultry (broilers, layers, turkeys). Poul-
try offer the additional benefit of insect control.
Goats are useful for weed and brush control.
This increases total animal production on the
same amount of land while decreasing reliance on
cultural and chemical methods to manage unde-
sirable plant species. It is important to employ
intensive grazing systems with paddocks sized
appropriately to the number of livestock. The ro-
tation of the various species through the paddocks
should be carefully planned and constantly moni-
tored as growing conditions change. Fencing will
likely have to be adapted as the various species
have different fencing requirements. However,
new developments in fencing materials, particu-
larly electric fencing, have helped to keep these
adaptations cost efficient.
Buildings that may have been used for just one
species in the past can be more efficiently used
year around as they are adapted to the needs of
various species. For example, beef cattle housed
in a bedded pack barn over the winter can be fol-
lowed by pigs that will root through bedded pack
in the spring time.
Diversifying livestock enterprises may better uti-
lize labor resources. For example, labor require-
ments for beef may be intensive during spring and
fall calving seasons. During the summer, when
beef labor requirements are reduced, then the ex-
cess labor can be employed in broiler production.
Layers need a more constant supply of labor year
around in feeding and egg harvesting.
Livestock handling and transportation equipment
can be adapted to the various species. The fixed
cost of machinery is better utilized as it is spread
over increased livestock production.
Diversifying reduces production risk. For exam-
ple, diseases are usually species specific. If there
is an outbreak in one species which requires time,
expense, and loss of income to be brought under
control, then the other species can continue to
carry the operation.
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To some farmers, having a varie-
ty of livestock on the farm makes
production more interesting and
enjoyable.
Economic and financial ad-
vantages of a diversified live-
stock system
Diversifying livestock can increase
production and improve profits.
This is particularly true because of
the relationship between fixed
costs and profit. Fixed costs are a
major expense in operating a farm.
Fixed costs are those expenditures
that must be made regardless of the
level of production. They include depreciation, in-
terest, insurance, land rent, property tax, salaried
labor, etc. As production increases for a fixed level
of resources, fixed costs per unit of production are
reduced and the profit per unit increases which also
increases overall profitability.
Diversifying livestock production can also even out
cash flow. For example, cow-calf or sheep opera-
tions often have sporadic cash sales as all young
stock from seasonal production are all sold in a nar-
row marketing window. Other species have differ-
ent production cycles which spread out sales and
create a more constant cash flow.
Planning and analyzing your diversified live-
stock system
Before embarking on a diversified livestock system
or adding a species to the current livestock system,
it is useful to plan the production numbers and do
an economic analysis to estimate the income, ex-
penses, and profit for each species and for the farm
as a whole. The economic analysis will help you
think through the inputs you will need. It will also
help you calculate the cost per pound so that you
determine the market price that you will need to set
on your products in order to generate a profit.
Table 1 is a simplified example of a diversified live-
stock analysis for a small, part-time
farm. The farmer has been selling 10
head of beef each year but wants to
increase sales by producing hogs
(25), turkeys (200) and broilers
(1,000). Each species is put in a dif-
ferent column and then the income,
variable expenses, overhead expens-
es, and profit are calculated for each.
Lines 2-6 calculate the income from
each enterprise. It is particularly im-
portant to estimate accurately the
average pounds of meat sold per
head (line 3) This is not necessarily
the carcass weight (beef and pork)
but the pounds sold to customers
which includes shrinkage. Equally important is esti-
mating the price (line 5) which is a function of mar-
keting strategies, production costs, and whether the
meat is sold by retail cut or in bulk.
Line 6 calculates the total income from each enter-
prise and the total for the farm. Line 7 calculates the
percent of total sales attributable to each enterprise.
This is used to allocate overhead costs (line 25).
Lines 9-12 calculate the variable costs for each en-
terprise. These costs vary according to the number
of livestock sold. This example farm buys young
feeder livestock and finishes them out. The cost of
the feeder livestock is on line 9. Usually the biggest
expense on a livestock farm is feed so it is im-
portant to analyze and calculate this carefully (line
5
6
10).
Lines 14 -26 are overhead costs that are difficult
to allocate out to the different enterprise so they
are just totaled and the total is apportioned to the
enterprises (line 27) based on their proportion of
total sales (line 7). Deprecation (line 26) is not a
cash cost but it is important to estimate and in-
clude since is reflects the annual costs (loss in
value) of buildings, fencing, machinery, and
equipment. Including it gives a better estimate of
profit. Tax depreciation can sometimes be used
but because tax rules allow rapid depreciation
then tax depreciation sometimes overstates the
actual annual costs of capital items and should be
reduced for the analysis. As mentioned earlier,
when overhead or fixed costs can be spread over
more species, the cost per unit of production can
be reduced and profit per unit of production, as
well as overall profit can be increased.
The variable and overhead expenses are totaled
on line 28 and subtracted from income on line 6
to determine total profit for the farm and each en-
terprise on line 29. This helps to understand the
importance of each enterprise. On this example
farm, beef is the most important product, yet
hogs, turkeys, and broilers all contribute signifi-
cantly to the total profit of the farm.
It is useful to calculate the cost per pound for
each enterprise (line 30). This is done by dividing
the total cost for each enterprise (line 28) by the
total pounds for each enterprise (line 4). The sell-
ing price should take into account the cost per
pound to produce each enterprise plus a margin
for profit which in this example must cover the
farmer’s labor and management.
On line 31, the total cost per pound (line 30) is
subtracted from the price per pound (line 5) to
calculate the profit per pound for each species.
This is a simplified example. You may be think-
ing about other livestock enterprises such as
lamb, goats, ducks, geese, eggs, and rabbits. This
analysis can be expanded for the number of enter-
prises you are considering. You may have costs
that were not illustrated here. For example you
may have a cow/calf operation where you have
breeding livestock costs instead for feeder live-
stock costs. You may also want to break out costs
for more detail. For example, you may want to
separate feed costs into forage and concentrates.
You could change or expand this analysis to meet
your own needs.
This analysis can be used for projecting the future
or for analyzing historical income, expenses, and
profit. A blank spreadsheet is included at the end
of this fact sheet for your use or you can obtain an
Issued in furtherance of Extension work, acts of May 8 and June 30, 1914, in cooperation with the U.S. Department of Agriculture, University of Maryland, College Park, and local
governments. Cheng-i Wei, Dean and Director of University of Maryland Extension.
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