Profitability and Economics of Northeast Organic Dairy Farms for

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Profitability and Economics
of Northeast Organic Dairy
Farms for 2005
Bob Parsons
Qingbin Wang
Glenn Rogers
Dennis Kauppila
University of Vermont
Rick Kersbergen
Tim Dalton
Lisa Bragg
University of Maine
Lisa McCrory
Willie Gibson
NOFA-Vermont
Study: To Examine and Estimate
the Profitability of Organic Dairy
Farms in Vermont & Maine
• 44 farms for 2005
– Vermont – 26 farms, Maine – 18 farms
• Up from 30 farms in 2004
Organic Dairy Growing Fast
• Maine – 70 organic dairy farms
• Vermont – 1130 total dairy farms
–
–
–
–
126 organic dairy farms today
80 farms in transition, certify in June
3 certified farms in 1994
47 certified farms in 2000
Study Procedure
• Study funded by USDA CSREES and
UVM Experiment Station
• Cooperate with NOFA and MOMP
• Teams visit farms to gather financial
data
Questions Addressed by Study
• How profitable is organic dairy?
• What is the trend in profitability?
• Range of profitability and cost of production
What Did We Find?
2004
2005
Milk price
$22.97
$24.94
Milk per cow
14,060
12,619
Herd size
48
56
Milk
sold/farm
689,000
740,100
What About the Income?
•
•
•
•
•
Milk Sales - $184,144
Dairy cattle sales - $3147
Cull cows and calves - $5648
Government payments - $6108
Value of farm production - $211,098
Now the Expenses…
2004
2005
$365
$400
$1003
$936
$320
$332
Depreciation/farm
$19,332
$20,371
Total expenses
154,635
$177,688
Supplies/repairs
Feed/cow
Labor/cow
So What’s the Bottom Line?
• Net cash income - $49,466
• Net farm Revenue - $33,409
• Farm Revenue up 18.8% from 2004!
Cost of Production
•
•
•
•
$24.58 per cwt vs. $24.94 milk price
In 2004 - $22.13 vs. $22.97 milk price
Cost of production/cwt up 11%
Milk price up 8.6%
How Much Income is Enough?
• Families supplied 5641 hours for $5.92/hr
• At family living expense of $35,000, net
farm income 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”
– 16 farms with positive “profit”
– Wide variation between farms
– -0.33% Return on Equity
Profitability of Organic Dairy Farms (2005)
12
Number of Farms
10
8
6
Series1
4
2
0
<-30k
-15 to-30k
-15k to 0
0 to 15k
15k to 30k 30k to 45k 45k to 60k
Accrual Income ($000)
60k to
100k
100k to
150k
>150k
Income per Cow Down from 1999
1999
2004
2005
Revenue/cow
$3248
$3648
$3600
Expenses/cow
$2414
$3057
$3021
Net /cow
$834
$590
$579
$28,114
$33,409
Farm Revenue $38,364
Organic Costs Up $607 Per Cow!
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
2005 – negative return on equity
Reasons for Organic
• 48% higher profits
• 30% stable milk prices
• 9% ethical reasons
Satisfaction with Organic
•
•
•
•
85% Very satisfied
15% Satisfied
None dissatisfied
Many farms would not be in business with
out 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.
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 revenue!
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 – Comparison is not “apples to
apples”
Conventional farms higher
production, lower milk price
for 2005
2005
Cows per farm
Organic
56
Conventional
66
Average assets
630,410
839,190
Milk per cow
12,619
19,494
Milk price
$24.94
$15.91
740,100 lbs
1,286,604
Milk marketed
per farm
Comparing Profitability
2005
Cows per farm
Organic
(N=44)
56
NEDFS
(N=146)
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
$936
$789
$7.41
$4.05
Purchased Feed
per cow
Purchased Feed
cost per cwt
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 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
Characteristics of “One of The Best?”
• $1146 net/cow…After Family Living!
• 13,980 lbs milk per cow (47 cows)
• Expenses – More then 50% below
average for vet, utilities, supplies, repairs,
interest, fuel, custom hire, and labor!
So What is this Farm’s Secret…?
•
•
•
•
•
Above average milk production per cow
Component premiums
Low debt
Low equipment investment
Darn Good Cost Management!
So What’s the Story?
•
•
•
•
More farms in study than in 2004
2005 income up but still not quite enough
Farmers right – they still need more $$ for milk
Organic better than conventional in 2005
– More income per cow and cwt
– Smaller farms, fewer cows
– 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?
• Nearly 90 VT farms switching to organic
Any Questions??????
Thank You for your Coming!!!!!
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