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Profitability and Economics of Northeast Organic Dairy
Farms for 2005
Rick Kersbergen
Tim Dalton
Lisa Bragg
University of Maine
Bob ParsonsQingbin WangGlenn Rogers
Dennis KauppilaUniversity of Vermont
Lisa McCrory Willie GibsonNOFA-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
Supplies/repairs $365 $400
Feed/cow $1003 $936
Labor/cow $320 $332
Depreciation/farm $19,332 $20,371
Total expenses 154,635 $177,688
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)
0
2
4
6
8
10
12
<-30k -15 to-30k -15k to 0 0 to 15k 15k to 30k 30k to 45k 45k to 60k 60k to100k
100k to150k
>150k
Accrual Income ($000)
Nu
mb
er o
f F
arm
s
Series1
Income per Cow Down from 1999
1999 2004 2005
Revenue/cow $3248 $3648 $3600
Expenses/cow $2414 $3057 $3021
Net /cow $834 $590 $579
Farm Revenue $38,364 $28,114 $33,409
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
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 Organic Conventional
Cows per farm 56 66
Average assets 630,410 839,190
Milk per cow 12,619 19,494
Milk price $24.94 $15.91
Milk marketed per farm
740,100 lbs 1,286,604
Comparing Profitability2005 Organic
(N=44)NEDFS (N=146)
Cows per farm 56 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
Purchased Feed per cow
$936 $789
Purchased Feed cost per cwt
$7.41 $4.05
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