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
Milk price
1999
(n=7)
$22.83
2004
(n=30)
$22.97
2005
(n=44)
$24.94
Milk /cow
13,272
14,060
12,619
Herd size
48
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
Feed/cow
$365
$400
$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
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
Return on Equity of Organic Farms
12
10
10
10
Number of Farms
10
8
6
6
5
4
3
2
0
< -10%
-10 to -6%
-5% to -1%
0-5%
6-10%
> 10%
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
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•
•
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•
•
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
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 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
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–
–
–
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?
Any Questions??????
Thank You for your Coming!!!!!