Profitability of Northeast Organic Dairy Farms Presented at the 2007 National Farm Management Conference Bob Parsons Qingbin Wang Glenn Rogers Dennis Kauppila University of Vermont Rick Kersbergen Tim Dalton Lisa Bragg University of Maine NOFA-Vermont

Study: To Determine the Profitability of Organic Dairy Farms in Vermont & Maine 44 farms for 2005 Vermont – 26 farms, Maine – 18 farms 30 farms in 2004 7 farms in 1999

Organic Dairy in New England Maine – 70 organic dairy farms Vermont – 1130 total dairy farms 126 organic dairy farms May 1, 2007 80 farms in transition to be certified in June 3 certified farms in 1994 47 certified farms in 2000 200+ farms by July 1

Study Supporters & Procedure Study funded by USDA CSREES and UVM Experiment Station Cooperate with NOFA and MOMP Teams visit farms to gather financial and survey data

Questions Addressed by Study How profitable is organic dairy? What is the trend in profitability? Variability of profitability? Cost of production?

First…Let’s Look at Trends 1999 (n=7) 2004 (n=30) 2005 (n=44) Milk price $22.83 $22.97 $24.94 Milk /cow 13,272 14,060 12,619 Herd size 48 56 Milk/farm 615,112 689,000 740,100 Net revenue $38,364 $28,114 $33,409

2005 Income? Milk Sales - $184,144 Dairy cattle sales - $3147 Cull cows and calves - $5648 Government payments - $6108 Organic farms eligible for MILC Value of farm production - $211,098

Now the Expenses… 2004 2005 Supplies & repairs/cow $365 $400 Feed/cow $1003 $936 Labor/cow $320 $332 Depreciation/farm $19,332 $20,371 Total acc expenses $154,635 $177,688

So What’s the Bottom Line? Net cash income - $49,466 Net farm Revenue - $33,409 $28,114 in 2004 Farm Revenue up 18.8% from 2004!

Cost of Production $24.58 per cwt vs. $24.94 milk price In 2004 - $22.13 cost vs. $22.97 price Cost of production/cwt up 11% Milk price up 8.6%

Unpaid Family Labor and Management Families supplied 5641 hours for $5.92/hr At family living expense of $35,000, net farm revenue (without off-farm income) was -$1591

What is Profit: “Economic” profit is what is left over after all expenses, depreciation, and owner labor is paid. So the “Average” farm did not earn a “profit” 19 farms with positive “profit” Wide variation between farms -0.33% Return on Equity

Income per Cow Down from 1999 2004 2005 Revenue/cow $3248 $3648 $3600 Expenses/cow $2414 $3057 $3021 Net /cow $834 $590 $579 Farm Revenue $38,364 $28,114 $33,409

Organic Costs Up $607 Per Cow! 1999 2004 2005 Feed $966 $1003 $936 Fuel $58 $93 $72 Labor $133 $320 $332 Total costs $2414 $3057 $3021 Cost/cwt $18.20 $22.13 $24.58

Results: Organic Profits Up in 2005 Net farm revenue still not at 1999 levels Milk price is up Income still not meeting family living 1999 – positive return on equity 2004 – negative return on equity 2005 – almost break even

Reasons for Organic 48% chose organic for higher profits 30% stable milk prices 9% ethical reasons Age: 52.6 years > 80% practice intensive grazing (<2 da) 41% Ship milk to Horizon

Satisfaction with Organic 85% Very satisfied 15% Satisfied None dissatisfied Observation - Many farms would not be in business without switching to Organic!

What Price Needed for Profit? Price to break even in 2005 - $25.15/cwt Price to earn 5% ROE - $28.42/cwt Many farms at that level right now.

How Does Organic Dairy Farm Profitability Compare to Conventional? Compare to “Northeast Dairy Farm Summary 2005” published by Northeast Farm Credit, farms under 90 head Caution – Not “apples to apples” 2004 was record milk price 2005 down but not rock bottom

Conventional farms higher production, lower milk price for 2005 Organic Conventional Cows per farm 56 66 Average assets 630,410 839,190 Milk per cow 12,619 19,494 Milk price $24.94 $15.91 Milk marketed per farm 740,100 lbs 1,286,604

Comparing Profitability 2005 Organic (N=44) NEDFS (N=146) Cows per farm 56 66 Net farm revenue $33,409 $28,842 Net revenue/cow $579 $437 Net revenue/cwt $4.17 $2.24

Are Costs any Different? 2005 Organic Conventional Cost per cow $3021 $3052 Cost per cwt $24.58 $15.66 Purchased Feed per cow $936 $789 Purchased Feed cost per cwt $7.41 $4.05

Conventional vs. Organic - 2005 Organic more profitable farm, cow, and cwt basis Conventional milks more cows Reality: Conventional farm milks 10 more cows For $4,567 less net revenue!

View of 2005… Average organic farm profitability improved over 2004 Still large variability between farms More profitable than Conventional Still not as profitable as in 1999

So What’s the Story? 2005 income up but still not quite enough Farmers still need more $$ for milk Organic better than conventional in 2005 More income per cow and cwt Smaller farms, fewer cows Limits demand for expanded facilities Some farms would not be in business!

More to Learn Study needs a bigger sample of organic farms Small farms can survive as organic but still face profit squeeze How high can organic milk price go? Growth of organic milk market? Change in grazing restrictions?

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