THE FINANCIAL PERFORMANCE OF GRAZING, ORGANIC AND CONFINEMENT
DAIRY FARMS
1
Thomas S. Kriegl
University of Wisconsin Center for Dairy Profitability
University of Wisconsin-Extension
Madison, Wisconsin
See http://cdp.wisc.edu for more information
National Farm Business Management Conference
Overland Park, Kansas,
June 9 - 13, 2013
Introduction
Ten Land Grant Universities plus Ontario standardized accounting rules and data collection procedures to
gather, pool, summarize and analyze actual farm financial performance from many sustainable, small farming
systems which currently lack credible financial data that producers need for decision-making, in a project
initially sponsored by USDA IFAFS grant project #00-52501-9708.
Spawned by the USDA IFAFS grant, this effort primarily compares Wisconsin organic dairy farm data to
grazing and confinement data. However, the Wisconsin data was also compared to the limited amount of
organic data collected in other parts of North America.
This project has over 124 farm years of Wisconsin organic dairy farm data spanning twelve years and many
more years of data from other Wisconsin dairy systems to help understand the financial performance of organic
dairy farming. The organic farms included in this study were receiving the organic price for their milk.
Data from organic dairy farms are scarce.
Actual farm financial data from organic dairy farms is still scarce but increasing. Much of the Wisconsin
organic data was collected by the Fox Valley and Lakeshore Farm Management Assns, and Wisconsin Farm
and Business Management Inc. Some was collected directly by the author. Because of the scarcity of the
organic data in any single year, this analysis and comparison of Wisconsin certified market organic dairy farm
financial performance with other systems focuses on a twelve year average for each group. None of the
summarized groups were random.
The number of grazing herds in the annual summaries declined substantially since 2005 because
several of the grazing farms that submitted data for several years became certified organic. Since 1995, at
least one of the graziers in the data was transitioning to organic, which likely slightly reduced the financial
performance of that herd. Since 1999, the grazing data also included a few grazing farms that were receiving
organic milk prices. Until 2009, the presence of these organic farms had minimal impact on the grazing group’s
average NFIFO, but the different cost structure began to show in 2006. Therefore, beginning with the 2006
data, the summarized Wisconsin grazing cost of production report does not include any herds receiving
organic milk prices.
1
Farm Financial Analyst, Center for Dairy Profitability, College of Agricultural and Life Sciences and Cooperative Extension,
University of Madison. Please see the Center’s website at http://cdp.wisc.edu.
The Wisconsin organic data includes organic farms that seriously practice management intensive
rotational grazing (MIRG) along with farms that grazed only enough to meet organic certification standards.
From 1999 to 2004, more than half of the farm years of organic data in the first five years were from farms that
were only meeting minimum grazing standards. As of June 17th, 2010, by definition all certified organic dairy
farms in the U.S. practice MIRG.
Comparing Financial Performance of Wisconsin Organic, Grazing and Confinement Dairy Farms 1999
to 2010
Since many non-organic farmers are asking how the financial performance of organic farming compares
with non organic systems, a twelve year simple average cost of production summary was compiled for
Wisconsin organic, grazing and confinement herds.
Several measures should be examined when analyzing financial performance and economic competitiveness
because no single measure tells the whole story. However one usually is limited to just a few measures to
explain the results. The primary measure used for illustrating in this report is net farm income from operations
(NFIFO) as a percent of farm income or revenue based on accrual adjusted income and expenses. A similar
measure is used in the non-agricultural business world.
The use of this measure is driven mainly by two factors. The organic milk price was usually much higher
than the milk price received by confinement and grazing herds. The pounds of milk sold per cow by
confinement herds was 30% and 40% more per cow sold by grazing and organic herds respectively.
Table 1 shows the range in annual observation numbers, herd size, NFIFO/$ income and twelve-year simple
average NFIFO/$ income for organic, grazing, small confinement, large confinement (more than 250
cows/herd), and the average Wisconsin confinement group.
Table 1
Farm # Range
Avg. Herd Size Range
NFIFO/$ Income Range
Graziers
12-43
61-69
25.17%
16.17-32.91%
Organic
6-17
48-68
21.55%
13.53-26.26%
Small Confinement
105-217
62-63
16.84%
5.72-24.93%
All Confinement
441-660
96-171
12.56%
(3.45)-19.33%
Large Confinement
34-80
441-644
8.79%
(7.93)-15.06%
Observations Of The Financial Performance Of Organic Dairy Farms.
1. By most measures, organic was usually the high total and allocated cost producers usually followed by
large confinement, then small confinement with graziers being the lowest cost producers in most
measures most years.
2. Still, organic had second highest 12 year simple average NFIFO/$ income and highest 12 year simple
average NFIFO/Cow. Graziers had the highest 12 year simple average NFIFO/$ income and second
highest 12 year simple average NFIFO/Cow, followed by small and then large confinement.
3. Organic annual average price premiums ranged from $2.70 to $13.02/hundredweight (cwt.) vs. nonorganic. The largest premium occurred in 2009. The price premium from 1999 to 2004 was $4.69 and
$8.30 from 2005 to 2010. The average organic herd needed a price premium of about $5.00/CWT sold
to offset their higher cost of production.
4. High production doesn’t guarantee profitability. Low production is even less of a guarantee of
profitability. Wisconsin grazing and organic dairy farms sell less milk per cow than Wisconsin
confinement herds do. The pounds of milk sold per cow have been increasing more in the confinement
systems than in the grazing and organic systems. The pounds of milk sold per cow in the organic system
may even be declining. This could influence the relative profitability of the systems in the future.
5. Less experienced organic dairy farms than those sharing financial data may not perform as well.
6. Data is scarce from any organic group especially from transitional organic.
7. Organic has been most competitive when the non-organic price was low.
8. Grazing probably “helped” the economic performance of the organic system more than vice versa.
9. If already practicing organic but not certified – go for the reward
10. If far from organic practices, the 3-5 year transition can be challenging.
11. Organic dairy farms in transition appeared to be competitive with non-organic dairy farms in an older
Quebec study.
12. In 2004, organic dairy farms in a New England study were not as competitive as
 Non-organic New England dairy farms
 Any Wisconsin dairy system
13. Since 2005, organic dairy farms in New England data have become more competitive with other dairy
systems due to increased price premiums but not on par with Wisconsin grazing or organic dairy farm
systems.
14. Feed costs were much higher for New England farms – especially for those which are organic than most
other states.
15. Minnesota organic dairy economic performance appears similar to Wisconsin from 2005 to 2010.
16. Use Caution comparing one dairy system from one state to other dairy systems in other states.
17. There are large consistent differences in NFIFO/$ income between many states and systems.
18. Graziers typically attain more NFIFO/$ income than other dairy systems in their states.
19. Wisconsin dairy systems typically attain more NFIFO/$ revenue than similar dairy systems in other
states.
20. Small dairy systems typically attain more NFIFO/$ revenue than large dairy systems in the same state.
21. The largest farms tend to generate more dollars of total NFIFO per farm and per owner compared to the
smallest farms.
22. This economic dairy data indicates that the economies of scale (lowest cost of production per unit) occur
at a much smaller size than people expect (somewhat less than 100 cows per farm).
23. Large confinement systems rely much more on hired labor than the other three systems. This explains
part but not all of the difference in their NFIFO/$ revenue.
24. The ranking of financial performance by state is very different from the official USDA cost of
production estimate ranking which relies very heavily on opportunity cost.
25. Family size farms (the size that can be operated mainly by family labor) are fairly similar across states in
terms of the total NFIFO they generate. However, the sizes of family size farms in this data are quite
different from state-to-state.
26. Organic, graziers, and large confinement systems indicated more satisfaction than small confinement
and non-intensive graziers in a University of Wisconsin study.
Twelve-Year (1999-2010) Simple Average Cost of Production as a Percent of Income for Wisconsin Grazing,
Organic and Confinement Herds
Graziers* Organic** Confinement
Range of Observations per Year
Range of Average Herd Size per Year
12 to 43
61 to 69
Percent of Income
100.00%
100.00%
100.00%
1.09%
0.66%
0.43%
3.33%
0.17%
21.08%
2.23%
0.76%
2.25%
1.32%
1.23%
2.08%
4.39%
1.55%
4.28%
1.56%
2.36%
2.03%
2.79%
-0.44%
0.74%
55.89%
1.12%
0.69%
0.12%
3.37%
0.01%
13.18%
2.47%
0.86%
3.37%
1.72%
1.64%
4.05%
6.78%
2.57%
4.61%
1.49%
2.47%
1.45%
2.65%
-0.21%
0.63%
55.03%
1.22%
0.41%
1.25%
3.08%
0.51%
20.36%
2.35%
1.06%
2.62%
1.19%
1.03%
3.95%
4.84%
2.13%
2.77%
1.00%
2.07%
2.97%
5.88%
-0.06%
1.96%
62.57%
4.48%
3.30%
5.44%
4.85%
5.14%
11.20%
Depreciation: Non-livestock
Total Non-basic Cost
Total Allocated Cost
(Basic + Non-basic)
11.17%
18.94%
74.83%
13.21%
23.43%
78.45%
8.52%
24.87%
87.44%
Unpaid Labor/Management
Interest On Equity
Total Opportunity Cost
16.61%
7.08%
23.70%
11.35%
6.23%
17.59%
5.58%
5.85%
11.43%
Total Cost
Total Income - Total Cost
Net Farm Income from Operations (NFIFO)
Gain (Loss) on Sale of All Farm Assets
Net Farm Income (NFI)
98.53%
1.47%
25.17%
0.33%
25.50%
96.04%
3.96%
21.55%
0.66%
22.21%
98.88%
1.12%
12.56%
0.41%
12.96%
Expenses
Breeding Fees
Car and Truck Expense
Chemicals
Custom Hire (Machine Work)
Custom Heifer Raising
Feed Purchase
Fertilizer and Lime
Freight and Trucking
Gasoline, Fuel, and Oil
Farm Insurance
Marketing & Hedging
Rent
Repairs all
Seeds and Plants Purchased
Supplies Purchased
Taxes
Utilities
Veterinary Fees and Medicine
Other Farm Expenses
Combined Non-Cash Adjustments
Depreciation: Livestock
Total Basic Cost
Total Paid Interest Cost
Total Paid Labor Cost
6 to 17
48 to 68
441 to 660
96 to 171
*The 1999 to 2005 grazing data includes a few farms that were transitioning to or certified as organic. No certified
organic farms were included in grazing summaries after 2005.
** The 1999 to 2010 organic data includes certified organic herds regardless of grazing intensity.
Twelve-Year (1999-2010) Simple Average Cost of Production Per Cow for Wisconsin Organic, Grazing and
Confinement Herds
Graziers*
Organic**
Confinement
Range of Observations per Year
Range of Average Herd Size per Year
12 to 43
61 to 69
6 to 17
48 to 68
44 to 660
96 to 171
Income
$3,067.86
$3,842.99
$3,997.03
Expenses
Breeding Fees
Car and Truck Expense
Chemicals
Custom Hire (Machine Work)
Custom Heifer Raising
Feed Purchase
Fertilizer and Lime
Freight and Trucking
Gasoline, Fuel, and Oil
Farm Insurance
Marketing & Hedging
Rent
Repairs all
Seeds and Plants Purchased
Supplies Purchased
Taxes
Utilities
Veterinary Fees and Medicine
Other Farm Expenses
Combined Non-Cash Adjustments
Depreciation: Livestock
Total Basic Cost
$33.38
$20.26
$13.34
$102.24
$5.33
$646.69
$68.52
$23.31
$68.92
$40.62
$37.72
$63.87
$134.54
$47.42
$131.32
$47.75
$72.39
$62.24
$85.46
($13.44)
$22.67
$1,714.57
$43.07
$26.34
$4.58
$129.54
$0.46
$506.56
$94.90
$33.13
$129.39
$65.92
$62.89
$155.68
$260.47
$98.84
$176.62
$57.37
$94.99
$55.89
$101.79
($8.21)
$24.21
$2,114.43
$48.71
$16.39
$50.09
$123.25
$20.36
$813.79
$93.74
$42.27
$104.84
$47.44
$41.02
$157.75
$193.43
$85.12
$110.55
$40.16
$82.58
$118.75
$235.08
-$2.55
$78.25
$2,501.02
$137.34
$101.21
$208.99
$183.83
$205.59
$447.85
Depreciation: Non-livestock
Total Non-basic Cost
Total Allocated Cost
(Basic + Non-basic)
$342.59
$581.14
$2,295.71
$507.55
$900.37
$3,014.80
$340.60
$994.04
$3,495.06
Unpaid Labor/Management
Interest On Equity
Total Opportunity Cost
$509.71
$217.30
$727.01
$436.37
$239.53
$675.89
$223.11
$233.91
$457.02
$3,022.72
$45.14
$772.15
$10.09
$782.24
$3,690.69
$152.30
$828.19
$25.31
$853.50
$3,952.08
$44.95
$501.97
$16.20
$518.17
Total Interest Cost
Total Paid Labor Cost
Total Cost
Total Income - Total Cost
Net Farm Income from Operations (NFIFO)
Gain (Loss) on Sale of All Farm Assets
Net Farm Income (NFI)
*The 1999 to 2005 grazing data includes a few farms that were transitioning to or certified as organic. No certified
organic farms were included in grazing summaries after 2005.
** The 1999 to 2010 organic data includes certified organic herds regardless of grazing intensity.