The Profitability of New England
Organic Dairy Farms 2004-2011
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%)
• 2006 - 110 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
2,500
Organic Dairy vs. Total Vermont Dairy Farms
250
O
r
g
200 a
n
i
c
150
V
e
r 2,000
m
o
n
t 1,500
D
a
i
100 r
y
D
a
i 1,000
r
y
500
50
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
0
1995
0
1994
F
a
r
m
s
F
a
r
m
s
Vermont
Organic
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 2010-2012)
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!
Vermont Organic Gross Milk Price 1999-2011
$35.00
$30.90
$30.00
$$ Per Cwt
$25.00
$28.71
$29.35
$30.19
$30.27
$30.63
2009
2010
2011
$24.73
$22.83
$22.97
1999
2004
$20.00
$15.00
$10.00
$5.00
$0.00
2005
2006
2007
2008
Cows per Farm (Vermont Organic 2011)
12
Low 20.0
High 107.0
Ave 57.4
Median 57.3
10
8
6
4
2
0
< 30
30-39
40-49
50-59
Cows per Farm
60-69
70-79
>80
Milk Production Cow/Year (2011 Vermont Organic)
12
Low 8,115
High 19,637
Ave 13,515
Median 13,091
10
8
6
4
2
0
<10,000
10-11,999
12-13,999
14-15,999
Annual Pounds of Milk per Cow
16-17,999
>18,000
Net Farm Revenue (2011 VT Organic)
9
Low -13,152
High 165,176
Ave 40,181
Median 34,416
8
7
6
5
4
3
2
1
0
<0
1-19,999 20-29,999 30-39,999 40-49,999 50-59,999 60-79,999 80-99,999
Net Farm Revenue per Farm (Excludes owner labor/management fee)
>100,000
Return on Assets (2011 Vermont Organic)
14
Low -6.45
High 10.5%
Ave 1.0%
Median 1.0
12
10
8
6
4
2
0
<-1%
-1%-0%
0% to 1%
1-2%
2-3%
3-4%
Return on Assets
4-6%
6-8%
8-12%
Debt/Asset Ratio (2011 Vermont Organic)
10
Low 0.0%
High 68.9%
Ave 22.97%
Median 22.55%
9
8
7
6
5
4
3
2
1
0
No Debt
1-10%
11-20%
21-30%
31-40%
41-50%
Debt to Asset Ratio of Vermont Organic Dairy Farms
>50%
Summary for 2011 (1.0% ROA)
(n=40)
Farm
Per Cow
Per 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
Cows Per Farm by Profit Group
70
65.2
60
C
o
50
w
s
57.4
56.5
50.6
40
P
e
r 30
F
a 20
r
m
10
0
Low
Mid
High
Average
Milk Per Cow by Profit Group
15,000
14,422
14,500
M
i
14,000
l
k
L
b
s
13,981
13,515
13,500
13,000
P
e 12,500
r
12,240
C 12,000
o
w
11,500
11,000
Low
Mid
High
Average
Net Farm Revenue by Profit Group
$90,000
$83,078
$80,000
Note: No charge
for Owner Labor.
$70,000
$60,000
$50,000
$39,518
$40,000
$35,708
$30,000
$20,000
$10,000
$0
$61
Low
Mid
High
Average
Return on Assets by Profit Group
6.00%
5.47%
5.00%
R
e
t
u
r
n
o
n
4.00%
3.00%
2.00%
1.04%
1.00%
0.97%
0.00%
A
s -1.00%
s
e -2.00%
t
s -3.00%
-4.00%
-5.00%
Low
-3.61%
Mid
High
Average
Debt to Asset Ratio by Profit Group
30.0%
D
e 25.0%
b
t
25.9%
23.8%
23.0%
19.1%
t 20.0%
o
A
s 15.0%
s
e
t
10.0%
R
a
t
i
o
5.0%
0.0%
Low
Mid
High
Average
Purchased Feed Per Cow by Profit Group
$1,800
Purchased Forage:
Low: $95
Mid: $34
High: $16
$1,657
$1,600
$1,400
$1,282
$1,202
$1,200
$1,089
$1,000
$800
$600
$400
$200
$0
Low
Mid
High
Average
Return Over Purchased Feed Cost
Per Cow by Profit Group
$3,500
$3,320
$3,000
$2,500
$2,850
$2,509
$2,649
$2,000
$1,500
$1,000
$500
$0
Low
Mid
High
Average
Accrual Expenses/Cow by Profit Group
$520
$510
$500
$480
$465
$460
$460
$439
$440
$420
$400
Low
Mid
High
Average
Net Revenue Per Cow by Profit Group
$1,400
$1,291
$1,200
$1,000
$800
$718
$688
$600
$400
$200
$10
$0
Low
Mid
High
Average
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
12,619
13,455
13,152
13,438
12,874
13,190
13,515
Cows
56
63
66
67
67
55
57
Milk per 740,100 852,800 886,627 910,174 880,240 731,422 778,817
farm
$33,409 $63,970 $53,522 $59,231 $55,527 $40,790 $39,518
Net
Revenue
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…
2005
2006
2007
2008
2009
2010
2011
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
$122
$159
$130
$142
$178
Utilities
$126
$126
$143
$139
$131
$146
$152
Or Per Cwt Basis…
2005
2006
2007
2008
2009
2010
2011
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:
Cows
Farm 2: Study Ave
66
48
57.4
Milk/cow
16,151
13,104
13,515
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 Assets
5.3%
5.5%
0.97%
Compare to Conventional Dairy?
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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
2009-2010 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
67
55
66
66
Milk per cow
12,874
13,190
19,047
$19,909
Revenue per cow
$4530
$4505
$3299
$4199
Feed per cow
$1195
$1099
$930
$1005
$93
$102
$81
$91
Expenses per cow
$3686
$3768
$3368
$3719
Net farm revenue
$844
$746
($69)
$480
Return on Assets
3.0%
0.8%
-2.8%
0.9%
Vet, med, breed
Purchased Feed Per Cow 2004-2011 ($/cow)
1400
1200
1000
800
Organic
Conventional
600
400
200
0
2004
2005
2006
2007
2008
2009
2010
2011
16% Protein Organic Dairy Feed in Vermont
Sept 2012
Sept 2011
Sept 2010
$720-$730 /ton
$515-$525 /ton
$420-$430 /ton
Profit Per Cow 2004-2011 ($/cow)
1200
1000
800
600
Organic
Conventional
400
200
0
2004
-200
2005
2006
2007
2008
2009
2010
2011
Milk Sales Per Cow 2004-2011 ($/cow)
4500
4000
3500
3000
2500
Organic
Conventional
2000
1500
1000
500
0
2004
2005
2006
2007
2008
2009
2010
2011
Fuel Costs Per Cow (2004-2011)
250
200
150
Organic
Conventional
100
50
0
2004
2005
2006
2007
2008
2009
2010
2011
Return on Assets (2004-2011)
6.0
5.0
4.0
3.0
2.0
Organic
Conventional
1.0
0.0
2004
-1.0
-2.0
-3.0
2005
2006
2007
2008
2009
2010
2011
Points on New England Organic
Dairy Farmers
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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???
•
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•
•
•
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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?
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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!!!!!