1. 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

2. 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

3. 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

4. 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

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

6. 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

7. 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

8. 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

9. 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!

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

11. 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

12. 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

15. 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

16. 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

17. 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

18. 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

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

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

21. 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

22. 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

23. 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

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

25. 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!

26. 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

27. 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!

28. 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?

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