The Profitability of New England Organic Dairy Farms Presented at: 2013 Extension Risk Management Education National Conference April 3-4, 2013 Denver, Colorado Bob Parsons, Dennis Kauppila, and Qingbin Wang University of Vermont

Organic Dairy in New England Vermont and Maine – some of highest concentration of US organic dairy farms Maine – 63 organic of 302 dairy farms Vermont – 205 organic dairy farms – About 963 total – Approximately 21% of Vermont dairy farms – About 7.5% of milk production

Vermont Organic Dairy History 1980’s – Start of organic dairy but not certified 1994 – 2 certified organic dairy farms (Organic Cow Milk, Stoneyfield Farm Yogurt) 2004 – 93 organic of 1250 dairy farms (7.4%) organic dairy farms – 80 farms transition at change of transition rule 2009 – Quota imposed at 93% of base 2012 – 205 organic of 963 dairy farms (21%) 2 primary organic outlets – Org Valley, Horizon

Why We Did the Study? Early 2000’s Organic was fast growing Only rumors about organic economics Lenders, farmers didn’t know much Policymakers…good thing or fad? So seeing a need: We did what extension does…do something!

Designed Study with Vermont and Maine (3 years) Designed study to get data from farmers Farmers get paid – its their data! Funded by: Integrated Organic Program Funding by UVM Hatch Funds Support from Organic Valley )

Questions for the Study Was organic profitable? What were the production costs? Exempt from commodity pressures? How does it compare to conventional? No one knew!

Study to Date 40 farms for 2011 (Vermont) 31 farms for 2010 (Vermont) 33 Farms for 2009 (Vermont) 35 Farms for 2008 (Vermont) 28 Farms for 2007 (Vermont) 41 Farms for 2006 (VT & ME) 44 farms for 2005 (VT & ME) 30 farms in 2004 (VT & ME)

2011 Economic Results Longest continuous organic dairy economic study in US 40 farms in the study in 2011 Several new farms in study Doesn’t look like path to riches!

Summary for 2011 (1.0% ROA) (n=40)FarmPer CowPer Cwt Cash Rev$262,396$4571$33.69 Gross Rev$263,201$4585$33.80 Cash Expen$197,261$3437$25.33 Gross Expen$223,684$3897$28.72 Deprec$24,673$430$3.17 Net Cash$65,136$1135$8.36 Net Revenue$39,578$688$5.07 Fam Living$35,000$610$4.49

Caution: Challenges of Averages Every sample has extremes Large enough sample allows closer exam Broke into 3 groups (13-14/group) – Group by net farm revenue Provide more reliable data to public: – Farmers, Lenders, Policymakers

Purchased Forage: Low: $95 Mid: $34 High: $16

Primary Differences Most Profitable Farms – More milk, more cows = more revenue – Lower feed cost, lower custom hire, higher labor Mid Group – “Tight with a Buck” – Lowest production, lowest expenses ($1K vs Low) – Low repairs, feed, labor, fuel Low Group – in trouble on cost side! – Fewer cows, hi custom hire, feed, fuel, feed, labor feed, repairs, accounts payable, feed

Over the Years of the Study… 2005 (n=44) 2006 (n=41) 2007 (n=28) 2008 (n=35) 2009 (n=33) 2010 (n=31) 2011 (n=40) Milk Price $24.94$28.84$29.35$30.90$30.23$30.32$30.63 Milk per cow 12,61913,45513,15213,43812,87413,19013,515 Cows Milk per farm 740,100852,800886,627910,174880,240731,422778,817 Net Revenue $33,409$63,970$53,522$59,231$55,527$40,790$39,518 ROA -0.5%5.1%3.3%3.6%2.8%0.8%1.0%

What is Left Over (cwt)? Per cwt.2005 (n=44) 2006 (n=41) 2007 (n=28) 2008 (n=35) 2009 (n=33) 2010 (n=31) 2011 (n=40) Milk price$24.94$28.84$29.35$30.90$30.23$30.32$30.63 Total Rev$28.75$34.41$34.78$34.89$34.50$33.66$33.80 Cash Ex$21.55$23.70$24.34$24.38$25.17$24.77$25.33 Total Ex$24.58$26.85$28.63$28.17$28.20$28.08$28.72 Net Fm Rev $4.19$7.56$6.15$6.72$6.31$5.58$5.07 Fam Living $6.64$5.39$5.77$5.35$5.45$4.79$4.49

Expenses on a Per Cow Basis… Feed$936$1172$1157$1283$1197$1099$1282 Repairs$400$457$461$476$521$561$530 Labor$332$371$298$304$402$381$345 Interest$124$179$194$180$148$134$137 Custom$73$127$154$142$175$160$178 Fuel$104$122 $159$130$142$178 Utilities$126 $143$139$131$146$152

Or Per Cwt Basis… Feed$7.41$8.58$8.63$9.39$9.12$8.21$9.45 Repairs$3.48$3.71$3.54$3.61$3.97$4.19$3.91 Labor$2.44$2.74$2.40$2.29$3.06$2.84$2.54 Interest$1.10$1.41$1.58$1.41$1.12$1.00$1.01 Custom$0.58$0.98$1.14$1.07$1.34$1.19$1.31 Fuel$0.86$0.90$0.95$1.20$0.99$1.06$1.31 Utilities$1.13$0.96$1.12$1.07$1.00$1.09$1.12

Best Small Scale Farms (2011) Per Cow Basis Farm 1:Farm 2:Study Ave Cows Milk/cow16,15113,10413,515 Milk price$30.98$32.87$30.63 Rev/cow$6161$4545$4585 Custom$63$74$178 Feed$758$1255$1282 Labor$980$189$345 Repairs$761$301$530 Total Expenses$4755$2845$3897 Net Revenue$1405$1699$688 Family Living$530$729$610 Return on Assets5.3%5.5%0.97%

Compare to Conventional Dairy? 2004 – Conventional more profitable 2005 – about the same 2006 – Definitely organic! 2007 – Conventional slightly better 2008 – Organic better by far 2009 – Organic cash flowing…Conventional losing 2010 – Organic down…Conventional recovering 2011 – Conventional better off

Comparison Organic 2009 Organic 2010 Non-Org 2009 Non-Org 2010 Milk price/cwt$30.23$30.32$13.30$17.55 Cows per farm Milk per cow12,87413,19019,047$19,909 Revenue per cow$4530$4505$3299$4199 Feed per cow$1195$1099$930$1005 Vet, med, breed$93$102$81$91 Expenses per cow$3686$3768$3368$3719 Net farm revenue$844$746($69)$480 Return on Assets3.0%0.8%-2.8%0.9%

Sept 2012 $720-$730 /ton Sept 2011 $515-$525 /ton Sept 2010 $420-$430 /ton 16% Protein Organic Dairy Feed in Vermont

Points on New England Organic Dairy Farmers Organic farmers, younger, more educated Greater use of grazing – have to Few raise grain – Not in New England! 93% Satisfied on organic decision 89% plan on milking 10 yr or more 85% organic more profitable in long run 81% - not be in business if not organic

Findings and Observations Organic fits New England small size farms Major Contributor to rural economy 81% of organic dairy farms would not be in business today if they had not gone organic 2009 was not a good year with quotas Managed growth envied by conventional

Price Situation Price increased winter 2012, seasonal bonus 2009 Income hit some farms hard – Bonus: MILC and disaster programs 2010 Prices rebound with bonus months OV and Horizon taking on more farms Where is profit heading? High grain prices? Depend on bad conventional years?

Future of Organic Dairy??? Consumption growing again Still an opportunity for smaller farms Need higher price as farms need more $$ Not sustainable at current prices!! But will consumers pay more? More good times to come?

Future…Regional Perspective? Organic fits well with Northeast dairy Close to the population centers Higher price than midwest farms Many organic farms would not be in business if they had not gone organic!

Future…National Perspective? No one wants to go back to conventional Some farmers still converting to organic Larger organic farms in the west? Organic milk in Walmart? Restrictive grazing rule taking effect – May be the best bet for NE organic!

Dairy Economics 101 Organic milk is a commodity! Some farms will survive – Range of profitability Golden age over? – Will 2006 be the “good ole days”? Times and things are a changin’!

Any Questions?????? Thank You for Coming!!!!!