This article was written by John Molenhuis (Business Analysis and Cost of Production Specialist, OMAFA). This article was originally published in the Spring 2026 issue of the Dairy Goat Digest.
Introduction
Planning for expansion will bring with it many questions that need to be considered before shovels hit the ground. This article will highlight some of these key considerations and a suggested thought process to ensure the expansion is a success.
Think Strategically First
While strategic planning may seem too removed from the practical day-to-day operations, expansion decisions need to start here: what are you trying to achieve and is expansion the best choice to achieve it?
Before pursuing expansion, evaluate your current productivity and profitability measures. Some common measures are litres per doe per year, labour hours per litre produced, cost per litre and net farm income. They may reveal that improvements in these measures at your current size can help get you closer to what you are trying to achieve before expansion. Expansion may be the right decision to fully reach your goal but be sure your current performance is meeting expectations and industry standards.
Once the decision to scale up has been made, understanding the potential financial impacts of expansion is important.
Impacts on Your Cost of Production
Growing your herd will have an impact on both variable and fixed costs. Variable costs that are tied to production will grow as the herd grows and production increases. Prices of inputs may see economies of scale benefits with larger volume purchases, resulting in discounts.
Current facilities may allow for expansion without major new capital expenditure. If this is the case, fixed costs will remain the same and spreading fixed costs across more production would reduce per unit costs.
If scaling up involves new capital investment in buildings and equipment, fixed costs will increase. Capital budgeting is needed to understand how the annual fixed costs of the new investments will affect the operation’s fixed costs. Ideally, your approach will be a balance between building large enough to accommodate growth and not overextending the operation with unused capacity during the growth phase. Scaling changes your cost structure. The benefits of economies of scale are not guaranteed, and managing efficiently at any size is key to controlling costs.
Expansion Scenarios
Depending on your farm’s situation and financial position, decisions will need to be made on how to proceed with expansion such as:
- Growing slowly or rapidly,
- Raising replacements or purchasing breeding stock,
- Renovating existing facilities or building new ones.
Modeling these different scenarios will help identify cash flow pressure points, labour needs and capital requirements.
Set Production and Financial Goals
The success of any expansion will depend on having clear, specific goals that are measured, realistic and tied to timelines. These goals will determine which financial and production metrics are important to track.
One main production goal will be increasing herd size. The rate and scale at which herd size increases will be dependent on your goals, timeframe and capacity. For example, increasing from 100 to 150 does in the first year of expansion, and from 150 to 250 does in the second year.
New facilities with better workflows and animal comfort may improve productivity in terms of litres per doe per year and milk quality. These new facilities may also result in better labour efficiency with more production per hour of labour.
Cost per litre will be critical to know along with focusing on key costs such as feed costs and the impact of new capital costs.
For expansions involving debt financing, both you and your lender will want to keep a close eye on debt repayment capacity.
Things May Get Worse Before They Get Better
During the expansion phase, be prepared that performance may decline for reasons such as:
- Revenue decreases because more replacements are held back and not sold as breeding stock or market livestock,
- Replacement purchase costs increase because of buying breeding stock rather than raising replacements,
- Production performance may suffer as you are learning how to manage a larger herd in a new facility,
- New construction and equipment installation will disrupt normal farm operations that may impact production measures and make it unclear if financial issues are related to the capital project or normal operations.
Scenario analysis to assess the impacts of these things happening will help manage the risk of any short-term drops in performance.
Conclusion
As Ontario’s dairy goat sector continues to evolve, producers are exploring whether scaling up makes sense for their farm. Expansion can bring opportunities of lower costs per litre, meeting increased demand, and increased net farm income. Planning is key to make sure the financial, operational, and production factors align.
