Buying power: Erie County dairymen band together in profitable group buying venture

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ERIE, Pa. – The purchase specs were determined. The numbers were crunched. The bids were received. It was time for a group of Erie County milk producers to make their first volume purchase through a new farmer-driven buyers’ group.

And that’s how approximately two dozen dairymen bought their first fax machines.

“We wanted to cut our teeth on something simple,” said George Wilcox, extension dairy agent in Erie County, “where the color of paint wouldn’t matter.”

Getting started. The buyers’ group is an offshoot of the Erie County Dairy Producers Group, a loosely organized “dairy chamber of commerce” for Erie County, which is ranked 19th in the commonwealth for dairy.

The parent group was formed about five years ago to bring farmers together for both a social and business purpose.

Farmers like to talk to one another about new ideas and what works on their farms and what doesn’t. But to be comfortable enough with others and be able to candidly discuss management decisions, there has to be a level of friendship or social interaction – of trust.

The dairy producers’ group meets monthly for idea sharing and educational programs, drawing as many as 45 producers for wintertime lunch meetings.

‘Incredible’ savings. The buyers’ group made its first purchase about six months after the producers’ group started meeting. Producers hoped to turn their volume purchasing power into money saved for their farms.

And it’s working. One member estimates he’s saved between $15,000 and $20,000 a year through the buyers’ group.

“The savings are just incredible,” said group member Dan Woods, who milks 130 cows near Edinboro. Some buys offer savings up to 50 percent from what he was previously paying as an individual farmer.

Wilcox estimates that the group is now purchasing about $500,000 worth of product annually, about 20 percent of which are factory-direct purchases. Eighty percent of the purchases are made through local suppliers.

The group makes such power buys as year-long supplies of diesel fuel, paper towels, silo plastic, milkhouse supplies, seed corn and forage seed, chemicals and dairy feed mineral supplements. Oh, and they’ve made a second buy of fax machines.

How it works. If there’s interest in a particular item, members voice their needs at a meeting. A “buy coordinator” is selected, who then does the leg work for conducting the buy.

Members discuss specifications for the purchase – to make sure all vendors are bidding on the same thing, and to make sure members get what they want.

Then a signup sheet is offered at a meeting. This is where the producer makes a purchase commitment. No member is obligated to participate in any purchase, but once his name is on the signup sheet, with his requested volume, there’s no backing out.

The buy coordinator then creates a bid sheet with all the specifications, volume, delivery time and place, and the bid deadline. He contacts vendors (producers suggest contacts at the meetings), solicits bids, answers questions, and accepts the bids.

When the bids come in, the bid coordinator makes a comparison chart so the group can make the best decision.

At the group’s next meeting, members review all bids and discuss the proposals openly. The vendor decision hinges on an actual vote.

Cash up front. The buy coordinator then collects money up front from members. Checks are due 10 days before the order is placed so they clear and the group can buy with cash in hand.

Lack of credit rating was the group’s biggest fear, but by requiring members’ checks to clear before the order is placed, and then being able to pay cash for the purchase has helped secure its reputation.

The discount they earn from the cash payment is substantial. Volume and cash discount purchases typically save about 25 percent over individual farmer’s purchases.

Worth the effort. Buy coordinators probably spend more time researching the products and getting the bids than they would if they were buying the product for themselves, Wilcox said, but the buys made through the group are often better researched and thought-out than if they were made individually.

Plus, members take turns being bid coordinators. They may be spending a lot of time on the purchase for which they’re bid coordinator, but for other purchases, they simply decide if and how much they want to buy of a particular purchase and sign the list.

“You do put some time into it,” admits dairyman Woods, who is the buy coordinator for the grease and oil bids in the spring.

For example, even after the bid is selected, he calls all the suppliers who submitted bids – successful and unsuccessful bidders. He thanks them for their time and interest, but doesn’t reveal the final price to the higher bidders.

“We’re not making up these prices just to get a supplier’s price down,” Woods said. “It’s dog eat dog; it’s a competition thing.”

The group has enough of a track record that now suppliers are approaching them, wanting to get in on the next bid.

One of the most complicated buys is the feed and supplement purchase – a buy that can also have the biggest impact because feed is the major input cost on a dairy farm.

Wilcox worked with the members to create a base corn silage/haylage ration, plus basic minerals. Then members can add to it.

Some local suppliers are eager to place bids; others won’t. “We give them the option,” Woods said.

Woods admits some farmers are reluctant to make a particular buy because of perceived risk or because they feel obligated to a long-time supplier. Even he held off participating in the group’s dairy feed supplements buy because his supplier was a friend.

“I was pretty loyal to him and we were friends,” he said. “But it came down to the dollar factor and there was just too much difference to let friendship govern that.”

Milk producers aren’t the only ones making the buys. Wilcox said several cash grain producers participated in the diesel fuel or propane buys. That interaction between livestock and crop producers created an added benefit: Some dairymen made corn grain buys directly from the crop farmers.

What it takes. Although the Erie County group is loosely organized, the key to its success has been leadership, said Dan Woods. “You’ve got to have good leadership – someone to take the role of being leader, to run meetings, someone who’s got the guts to call things black and white.”

He credits Wilcox for a lot of the leadership, as well as Tom Rand of McKean.

Wilcox downplays his role, saying, “It isn’t something an outsider is going to do. The impetus to keep it going has to come from within.”

Educational role. In the summer, the producers meet on members’ farms, to view their operations or check out test plots that the group and Wilcox have created. They’ve grown different corn silage varieties, which Woods said has helped him select varieties based on local conditions.

Woods said the opportunity to stay abreast of current events and issues is as big a benefit as the dollars saved. “The education part of it is a pretty big deal, too.”

Meetings earlier this year focused on such topics as vaccines, crop insurance, foot-and-mouth disease and farm biosecurity precautions.

Moral support. Wilcox said the relationships created through participation in the producers’ group are “more important to the long-term survivability of the dairy industry than the dollars saved by group buying.”

“Most participants now feel comfortable discussing how they manage their herd and business.”

And the socialization and shared experiences give producers a boost.

“It’s something that helps hold our county dairymen together,” Woods said. “It gives you a little bit of support.”

“You need moral support, because sometimes you feel a little bit alone.”

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