Art Schaap Relies on Diversification for Success
On a warm and sunny afternoon, Art Schaap walks a field of triticale to determine how much taller it will get before harvest. The warm air hangs in stark contrast to the icy whiteout conditions he endured in December during Winter Storm Goliath. Born into a long line of dairymen, Schaap started his dairy 30 years ago with 160 cows he purchased from his grandfather. Today, he and his wife, Renee, milk 4,500 cows on their three dairies near Clovis, N.M. They are among the top tier of farmers who possess the scale, business grit and financial acumen to thrive amid the volatile swings of today’s dairy business.
“I still remember driving to the Portales livestock auction with a two-horse trailer and two cows in the back,” Schaap recalls, thinking back to the 1980s. “I had just sold about 25 cows and was thinking to myself, ‘Man, I want to get to 1,000 cows, but I don’t know how I am ever going to get there.’ But I did.” He had to reach that mark to be profitable today. Dairies with fewer than 1,000 cows currently have a hard time covering their costs, according to a recent report from USDA’s Economic Research Service. Once Schaap reached that milestone, growth was pretty simple. “I just kept adding cows,” he says. But to survive in this market, it’s more about diversification.
Successful, Not Lucky
Schaap’s approach to his business reflects one of his favorite quotes, from Gen. George Patton: “If everybody is thinking alike, then nobody’s thinking.” It’s an approach that got its start in the Schaap family way before Art. Schaap’s father and grandfather were dairying in their native Netherlands in the 1950s, when a new tax on prof - itable businesses threatened to take 60% of their revenue. Soon, they were immigrant workers on a California dairy farm. After years of labor, they started their own in Ontario, Calif., about 40 miles east of Los Angeles. But as urban sprawl pushed LA communities farther eastward, the family joined the thousands of other dairies in that area heading for New Mexico and Texas to expand. (See info - graphic: Changing Geography of the U.S. Milkshed). In 1977, Schaap was 13 and learning every job on his family’s dairies in Portales and El Paso. By the time he graduated from college, he was ready to manage one of the locations and soon wanted to set out on his own. While it is pretty common for dairy kids to inherit farms, that wasn’t the case for Schaap or his two brothers “My grandfather said, ‘I’ll sell you the cows, and I’ll finance you,’” Schaap says.
“We were never given anything but opportunity. My grandfather helped my dad get started, my dad and grandfather helped me, and I plan to give my children the same opportunity.” Today Schaap and his brothers, Ronald, Andy and Eddie, milk nearly 20,000 cows between them (Andy has a 3,500-cow dairy, Eddie a 6,000-cow operation and Ronald a 5,000-cow dairy). Schaap says the advantage of starting small and gaining scale over time is the chance to do every job on the farm along the way. It also doesn’t hurt when it comes time to expand into other, related businesses. As Schaap’s dairy expanded, his challenge came in creatively diversifying his business, an increasingly essential change for farmers.
So Schaap, who says he wakes up every day pondering how to get more money out of his business, grew his operation to include two conventional and one organic dairy. He also has ownership in a cheese factory, a railroad-car unloading business and a lab that tests feed and milk samples. Those initiatives reflect the importance of strategic planning on an ongoing basis, says Robert Milligan, Ph.D., a former dairy-business professor at Cornell University. It used to be that farmers thought about strategic plans once a year, Milligan says, but in today’s turbulent market, it must be ever-evolving. “I often say the owner must start each morning thinking about the future of the business,” Milligan says.
That kind of progressive development can be seen in the growth of Schaap’s cropland alongside his herd. The Schaaps and two employees manage 10,000 acres of ranchland for grazing the heifers that will be milked on the organic operation and farm roughly 5,000 acres of crops, including corn, wheat and triticale, a high-quality forage (a wheat/rye cross) becoming common throughout the western half of the U.S.
It’s easy to continue doing what you’ve always done. It’s harder to go against the grain. Yet Schaap says that’s the only way dairy farmers will make enough money in the future. “To survive in this industry, we are going to have to get creative,” he says. In Schaap’s case, thinking outside the box means hauling his own milk and spreading it over three markets. He sells 25% of it to Tucumcari Mountain Cheese Company, in which he’s a 50% owner. He sells 30% of his milk through the co-op Organic Valley. The balance of his dairies’ milk goes directly to Dean Foods. Organic production is a component of the diversification equation on Schaap’s farm. Organic producers receive $19 per cwt more for their milk than conventional producers, USDA reports. Schaap says the approach ensures his eggs aren’t all in one basket, and he also thinks Organic Valley does a better job connecting with consumers than conventional co-ops.
In 2008, Schaap bought a stake in the Tucumcari Mountain Cheese Company, looking for another outlet for his milk. Selling to his own creamery gives him an advantage. “The closer you are to the consumer, the more money you make,” he says. The creamery produces several cheeses, but its bread and butter is Feta. Schaap says dairy-farmer-owned cheese plants are the future of the dairy business because they allow the farmer to set the price for at least a portion of his or her milk. “You can’t do what everybody else is doing just because they are doing it,” he says. “Do what makes you profitable.”
Throughout his career, Schaap has gone his own way. “I don’t want people to tell me what I have to do,” Schaap says. In 2000, he had grown tired of being forced to purchase feed only from companies with a rail spur in the area to unload it. So he and a neighbor started a railroad car unloading company called Windmill Inc., providing anyone in the area the chance to purchase feed from any broker in the U.S. The spur is connected to a Burlington Northern Santa Fe railroad line but isn’t affiliated with any single commodity company. “We will unload feed for anyone for a fl at fee,” Schaap says, “but we don’t want to be tied to anyone.” This service addresses a pinch point because one of the biggest disadvantages of dairy farming in the arid Clovis area is the majority of feed can’t be grown locally. It must be hauled in, forcing local farmers to pay thousands of dollars in brokerage fees. The city of Clovis is perfectly positioned for this business; 90 trains pass through it each day, lifelines for the 34 dairy operations registered in the city (not to mention the others nearby). In 2009, he and several neighbors created an independent testing lab called ADM Laboratories (not affiliated with Archer Daniels Midland) because dairy producers and area farmers couldn’t agree on the dry matter in the feed they were trading. Now, the lab tests feed and milk. “We use oven testing and Near Infrared Reflectance spectroscopy testing for feed trades for farmers. We also [test for] feed quality,” Schaap says, along with milk components and quality. They didn’t stop with testing for farmers, either. Now, Schaap’s ADM performs co-op testing for organic dairies in the area and for several dairies that sell to Dean Foods.
Big Family Farm
The dairying tradition will continue with the next generation of the Schaap family. Schaap and Renee have three children, two of whom are married. All are involved with the dairies. Schaap’s son Ryan manages one; his son- in-law Aaron Vaughan another, and step-brother Andy Buloma manages the organic operation. Schaap doesn’t plan to grow his herd. “There’s a time in your life where you buy and grow, and a time when you have to sell and you retire,” Schaap says. “That’s the time when you groom the next generation to take over.” One day, Ryan plans to purchase the dairy he manages. When he does, the 27-year-old says his biggest challenge will be filling his dad’s shoes. It’s perhaps a sentiment Art had in his own time, as his elders made a new life in America. Ryan says: “My generation will never compare to the generation before.”