1. Profitability and Economics of Northeast Organic Dairy Farms for 2005 Rick Kersbergen Tim Dalton Lisa Bragg University of Maine Bob Parsons Qingbin Wang Glenn Rogers Dennis Kauppila University of Vermont 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 Study funded 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? 20042005 Milk price$22.97$24.94 Milk per cow14,06012,619 Herd size4856 Milk sold/farm 689,000740,100

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… 20042005 Supplies/repairs$365$400 Feed/cow$1003$936 Labor/cow$320$332 Depreciation/farm$19,332$20,371 Total expenses154,635$177,688

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

14. Income per Cow Down from 1999 199920042005 Revenue/cow$3248$3648$3600 Expenses/cow$2414$3057$3021 Net /cow$834$590$579 Farm Revenue$38,364$28,114$33,409

15. Organic Costs Up $607 Per Cow! Per Cow199920042005 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

16. 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

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

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

19. 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.

20. 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!

21. 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”

22. Conventional farms higher production, lower milk price for 2005 2005OrganicConventional Cows per farm5666 Average assets630,410839,190 Milk per cow12,61919,494 Milk price$24.94$15.91 Milk marketed per farm 740,100 lbs1,286,604

23. Comparing Profitability 2005Organic (N=44) NEDFS (N=146) Cows per farm5666 Net farm revenue$33,409$28,842 Net revenue/cow$579$437 Net revenue/cwt$4.17$2.24

24. Are Costs any Different? 2005OrganicConventional 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

25. 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!

26. 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

27. 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!

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

29. 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!

30. 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

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