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Extension > Agriculture > Dairy Extension > Organic dairying > Profitability of organic dairy farming

Profitability of organic dairy farming

Brad Heins
Assistant Professor
September 11, 2011

Recently we hosted a seminar at the University of Minnesota-St. Paul Campus to give dairy producers and dairy industry representatives an opportunity to hear the latest information on the economics of organic dairy production. Dr. Bob Parsons, an Extension Economist at the University of Vermont, presented his research on profitability of New England organic dairy farms, which was based on 7 years of financial data provided by farmers. His research team wanted to answer these 3 questions: Is organic dairying profitable?, What are the production costs associated with organic dairying?, and how does organic dairying compare to conventional dairying?

Very little research has been conducted on the profitability of organic dairying, and understanding the costs of production on an organic dairy farm can be a challenge. However, this information can be significant to organic dairy producers, as well as conventional producers, looking to improve the financial situation of their dairy herd. Producers who have a handle on the economics of their organic dairy production system can make decisions that reduce financial loss.

The Minnesota Department of Agriculture and the University of Minnesota have collected financial data from organic dairy farms for the past few years. The Minnesota financial information presented in this article is from the recently published report "2010 Organic Farm Performance in Minnesota" from the Minnesota Department of Agriculture.

So what does the financial performance of organic dairy farms in Minnesota and Vermont look like? The table accompanying this article shows the performance data of organic and non-organic dairy farms in Minnesota and Vermont during 2010. For Minnesota, organic dairy herds had 8,900 lbs. less production than non-organic herds; however, the lower production is a result of lower inputs for cows (i.e. feeding less grain). Additionally, organic herds in Minnesota had less feed cost and less total costs per cow than non-organic herds. Organic herds had less feed costs because they fed less grain whereas non-organic herds had high grain prices and high prices on protein and vitamins and minerals. Organic herds in Minnesota also had less veterinary costs ($72.57 less per cow). Bottom line, organic dairy herds in Minnesota during 2010 had more net income per cow (+$544) than non-organic herds.

What about Vermont, where 21% of dairy farms are organic? Total costs per cow were slightly more for Vermont organic dairy farms than non-organic dairy farms. During 2010, net income per cow was similar ($914 versus $925) for organic and non-organic dairy farms in Vermont. Veterinary costs were similar ($102 versus $91) for organic and non-organic herds, respectively, in 2010. These values are for the average farm in Vermont, which indicates that some organic farms are doing quite well and others are not as profitable.

There are some key points that the University of Vermont economic comparison reported. First, an organic production model fits the small size dairy farms of New England well, because most Vermont farms are located in the hills where pasture is abundant and farmers don't grow much corn for grain. Second, an overwhelming number of organic dairy producers are satisfied with their decision to go organic, plan on milking 10 years or more, and think organic dairying is more profitable in the long run. Lastly, most of the organic producers in Vermont indicated they would not be in business if it were not for organic. For both Minnesota and Vermont the organic milk price may likely need to be higher, depending on the continued increase of feed and fuel, for organic dairy farms to survive.

Currently, University of Minnesota researchers are seeking dairy producers who are transitioning to organic or have been certified organic for less than three years to participate in a farm financial research study. This research effort will investigate the economics of transitioning to organic dairy production and you can become part of it. To participate, you must enroll in the Minnesota Farm Business Management program and share your farm data (names are kept confidential). Scholarships are available for up to 90% of the tuition cost. At the end of each year, you will receive a whole farm analysis that will detail the financial performance of your dairy farm. If interested in signing up for the program, contact Meg Moynihan at the Minnesota Department of Agriculture at 651-201-6616 or meg.moynihan@state.mn.us.

If you need assistance to improve the profitability on your organic dairy or want more information regarding the organic dairy program at WCROC, contact me at (320) 589-1711 or hein0106@umn.edu. For more information about organic dairying visit the U of MN Extension Dairy Team website at www.extension.umn.edu/dairy.

Table.  Performance of organic and non-organic dairy herds in Minnesota and Vermont in 2010.
  Minnesota Vermont
Organic Non-organic Organic Non-organic
Cows per herd 79 137 55 66
Milk Price ($/cwt.) 26.19 16.26 30.40 13.30
Milk Production (lbs.) 12,819 21,732 13,116 19,909
Income ($/cow) 3,102 3,278 4,469 4,199
Feed cost ($/cow) 1,210 1,569 1,065 1,005
Total cost ($/cow) 2,346 3,057 3,555 3,286
Net Income ($/cow) 756 212 914 925
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