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9B11B018
GOATS: THE GREEN ALTERNATIVE (A)
David M. Cu
ie and Kyle S. Meyer wrote this case solely to provide material for class discussion. The authors do not intend to
illustrate either effective or ineffective handling of a managerial situation. The authors may have disguised certain names and other
identifying information to protect confidentiality.
Richard Ivey School of Business Foundation prohibits any form of reproduction, storage or transmission without its written
permission. Reproduction of this material is not covered under authorization by any reproduction rights organization. To order copies
or request permission to reproduce materials, contact Ivey Publishing, Richard Ivey School of Business Foundation, The University
of Western Ontario, London, Ontario, Canada, N6A 3K7; phone XXXXXXXXXX; fax XXXXXXXXXX; e-mail XXXXXXXXXX.
Copyright © 2011, Richard Ivey School of Business Foundation Version: XXXXXXXXXX
Jaden McCoy operated a dairy goat farm in Soddy-Daisy, Tennessee. In January 2011, the owner of a
nea
y resort approached McCoy about using goats to clear a section of his property. The property had
ecome overgrown with a variety of weeds, and was situated on a steep hillside that made it difficult for
the maintenance staff to reach with power machinery. This particular site was populated with nettles,
kudzu and poison ivy, all of which are safe for goats. There was no evidence of plants such as azalea or
oleander that are toxic for goats.
McCoy knew goats had become popular for property maintenance in situations where the te
ain was rocky
or uneven. He had been approached by other property owners about renting out his herd, but had rejected
the offers because he was not able to determine the overall cost. To consider this offer, McCoy assembled
information to determine whether such an undertaking was profitable. The next step was to put this
information into a format that would help him decide whether he should accept the proposal.
MCCOY’S DAIRY GOAT BUSINESS
In the United States, the dairy goat business is fragmented and localized. According to the U.S.
Department of Agriculture’s 2007 Census of Agriculture, there were 27,481 farms containing 334,754
goats, meaning each farm averaged 12 goats.1 Eighty per cent of the goat farms had fewer than 100 head.
There was not much demand for goat’s milk from the general population, particularly when compared to
cow’s milk. Goat’s milk was usually sold to local customers, frequently as feed for other animals due to its
high nutritional content.2
McCoy’s dairy goat farm was one of 50 within a radius of 100 miles, including eastern Tennessee, western
North Carolina, and northern Georgia. McCoy thought his farm of 100 does was the largest in the region.
1 United Stated Department of Agriculture XXXXXXXXXXCensus of Agriculture,
www.agcensus.usda.gov/Publications/2007/Full_Report/index.asp, accessed August 16, 2010.
2 Pennsylvania State Univ XXXXXXXXXXDairy goat production, Cooperative Extension Service,
http:
pubs.cas.psu.edu/FreePubs/pdfs/ua260.pdf, accessed August 10, 2010.
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McCoy had many other business interests outside dairy goat farming; dairy goats represented a small part
of the total. They kept his 60 acres free of noxious weeds, did not require an inordinate amount of
attention, and created a small profit.
McCoy acquired goats many years ago almost by accident. He attended the Hamilton County Livestock
Exposition with a girlfriend who thought the goats were “cute” when she saw them on exhibit. She
purchased four of them — a buck and three does — as a present. The present lasted longer than the
girlfriend did, and through the years the herd grew to its present size of 100 does and one buck. The does
produced milk that McCoy sold to a local health food cooperative.
Multiple births are common for does. The period during which a doe lactates lasts up to 300 days. In the
latter part of the gestational period, the doe is dry and produces no milk. Some of McCoy’s does were
unproductive because they did not become pregnant or produced little milk, so McCoy culled them from
the herd along with the excess kids to maintain a herd of 100. All the adult males except two were sold
ecause there was no reason to have males in a dairy herd, except to impregnate the females.
The primary source of revenue from the goats was milk sales, but other revenue was derived from the sale
of culled does and kids. The traditional method of allocating expenses in most animal-raising enterprises is
on a per-head basis, so costs in the dairy farm were allocated per doe. The primary cost was feed, including
forage, grain and minerals, but also milk for replacement livestock. Wages for day labourers were another
major expense. These employees helped McCoy tend the goats, milk them and deliver the milk to the
cooperative.
McCoy had to purchase replacement livestock each year to
ing new blood lines into the herd, adding
vigor and improved milk production. It also was necessary to replace livestock lost due to age, predation
and disease. This shrinkage could amount to as much as 25-30 per cent of the herd each year. A
eplacement doe cost US$200-300, while a buck cost US$400-500.
Net revenue after variable costs — the contribution margin — had to cover the fixed costs of operating the
farm: depreciation of the milking equipment and other machinery, the barn and purchasing replacement
livestock. The most recent income statement revealed the farm generated taxable income of US$3,291 in
2010 (see Exhibit 1). This amount was added to other income McCoy earned so he could calculate his tax
liability for the year.
THE PROPOSAL
The potential client was a resort of several hundred acres in the foothills of the Smoky Mountains between
Chattanooga and Knoxville, Tennessee. Due to the rocky te
ain, the grounds keeping staff found it
difficult to maintain portions of the property. Workers frequently had to cut and trim by hand rather than
y machine, increasing the cost of property maintenance. Consequently, the maintenance supervisor called
Jaden McCoy one afternoon to inquire about using goats in place of maintenance staff on the portions of
the property where machinery could not be used. The supervisor invited McCoy to suggest a price. McCoy
elieved he was the only person bidding on the contract at this time.
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REVENUES
Revenue from this project would come from renting the goats. McCoy did not have experience renting out
goats, but he believed he could earn a profit at a rental fee per day of US$15. Since he was the only bidder,
McCoy realized he could raise the fee if his calculations revealed that the project would be unprofitable.
McCoy had to determine how many goats were necessary and how long they would be on site. Since the
trailer held up to 25 goats, McCoy decided he would transport the maximum number of goats to the job,
pricing each job on the basis of 25 goats per day. The number of calendar days on a job would vary
according to the size of the site.
McCoy had to determine how much the goats would eat to adequately estimate the time for this project.
The amount of forage goats would eat actually depended on the density and type of vegetation. A goat in a
pasture would eat about 250 square feet of forage daily, but McCoy had no idea how much they could eat
on a wild hillside. He decided to use 250 square feet as the numerical amount in his calculations, declaring
it the forage square feet per goat. In his formula, the site area, the number of goats and the forage square
feet per goat determined the number of calendar days the goats would spend on site. At 360 feet by 121
feet, the proposed property was an acre in size.
Once he determined the number of calendar days spent on site, McCoy could calculate revenue from the
proposed project as a function of the number of goats, the rental fee per day and the number of calendar
days. Due to difficulties loading and unloading the goats, McCoy decided to bill for a full day even when
the job required only a portion of a day. If a job took three and a half days to complete, the client would be
illed for four full days.