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Profitability and Economics of Northeast Organic Dairy Farms for 2005

Profitability and Economics of Northeast Organic Dairy Farms for 2005. Bob Parsons Qingbin Wang Glenn Rogers Dennis Kauppila University of Vermont. Rick Kersbergen Tim Dalton Lisa Bragg University of Maine. Lisa McCrory Willie Gibson NOFA-Vermont.

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Profitability and Economics of Northeast Organic Dairy Farms for 2005

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  1. Profitability and Economics of Northeast Organic Dairy Farms for 2005 Bob Parsons Qingbin Wang Glenn Rogers Dennis Kauppila University of Vermont Rick Kersbergen Tim Dalton Lisa Bragg University of Maine Lisa McCrory Willie Gibson NOFA-Vermont

  2. 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

  3. 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

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

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

  6. What Did We Find?

  7. 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

  8. Now the Expenses…

  9. So What’s the Bottom Line? • Net cash income - $49,466 • Net farm Revenue - $33,409 • Farm Revenue up 18.8% from 2004!

  10. 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%

  11. 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

  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” • 16 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 • 2005 – negative return on equity

  16. Reasons for Organic • 48% higher profits • 30% stable milk prices • 9% ethical reasons

  17. Satisfaction with Organic • 85% Very satisfied • 15% Satisfied • None dissatisfied • Many farms would not be in business with out 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. 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!

  20. 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”

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

  22. Comparing Profitability

  23. Are Costs any Different?

  24. 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!

  25. 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

  26. 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!

  27. So What is this Farm’s Secret…? • Above average milk production per cow • Component premiums • Low debt • Low equipment investment • Darn Good Cost Management!

  28. 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!

  29. 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

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

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