The Profitability of New England Organic Dairy Farms 2004-2011

1. 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

2. 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

3. 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

5. 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!

6. 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)

7. 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!

8. 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)

9. 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!

16. Summary for 2011 (1.0% ROA)

17. 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

23. Purchased Forage: Low: $95 Mid: $34 High: $16

27. 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

28. Over the Years of the Study…

29. What is Left Over (cwt)?

30. Expenses on a Per Cow Basis…

31. Or Per Cwt Basis…

32. Best Small Scale Farms (2011)Per Cow Basis

33. Compare to Conventional Dairy? • 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

34. 2009-2010 Comparison

36. 16% Protein Organic Dairy Feed in Vermont Sept 2012        $720-$730 /ton Sept 2011        $515-$525 /ton  Sept 2010        $420-$430 /ton

41. Points on New England Organic Dairy Farmers • 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

42. 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

43. 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?

44. Future of Organic Dairy??? • 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?

45. 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!

46. Future…National Perspective? • 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!

47. 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’!

48. Any Questions?????? Thank You for Coming!!!!!