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Profitability of Northeast Organic Dairy Farms

Profitability of Northeast Organic Dairy Farms. Presented at the 2007 National Farm Management Conference. Rick Kersbergen Tim Dalton Lisa Bragg University of Maine. Bob Parsons Qingbin Wang Glenn Rogers Dennis Kauppila University of Vermont. NOFA-Vermont.

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Profitability of Northeast Organic Dairy Farms

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  1. Profitability of Northeast Organic Dairy Farms Presented at the 2007 National Farm Management Conference Rick Kersbergen Tim Dalton Lisa Bragg University of Maine Bob Parsons Qingbin Wang Glenn Rogers Dennis Kauppila University of Vermont NOFA-Vermont

  2. 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

  3. 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

  4. Study Supporters & Procedure • Studyfunded by USDA CSREES and UVM Experiment Station • Cooperate with NOFA and MOMP • Teams visit farms to gather financial and survey data

  5. Questions Addressed by Study • How profitable is organic dairy? • What is the trend in profitability? • Variability of profitability? • Cost of production?

  6. First…Let’s Look at Trends

  7. 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

  8. Now the Expenses…

  9. 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!

  10. 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%

  11. 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

  12. 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

  13. Income per Cow Down from 1999

  14. Organic Costs Up $607 Per Cow!

  15. 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

  16. 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

  17. Satisfaction with Organic • 85% Very satisfied • 15% Satisfied • None dissatisfied • Observation - Many farms would not be in business without switching to Organic!

  18. 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.

  19. 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

  20. Conventional farms higher production, lower milk price for 2005

  21. Comparing Profitability

  22. Are Costs any Different?

  23. 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!

  24. 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

  25. 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!

  26. 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?

  27. Any Questions?????? Thank You for your Coming!!!!!

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