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 • • • • • • 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 – – – – 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!!!!!