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Profitability of Northeast Organic Dairy Farms

Robert Parsons and Qingbin Wang

Summary

Financial risk management has driven the longest on-going economic study of organic dairy farms in the US. Since 2005, 11 years of financial analysis has provided organic dairy farmers, farmers, service providers, lenders, and policy makers the comparable farm profitability of organic dairy farms in the northeast.

For 2014, organic dairy farms posted an average ROA of 1.9%, averaged 57.7 cows, producing 12,765 lbs. of milk, and sold 749, 955 lbs at $35.09/cwt. The farms averaged net revenue of $47,603 before any charge for unpaid owner labor. The largest expenses were purchased feed (34.2%), repairs and supplies (13.3%), labor (11.7%), and depreciation (11.2%).

The data were examined by 3 profit groups with ROA of 5.39%, 1.69%, and -1.95%, respectively. The High Profit group averaged more cows per farm (69.0), more milk per cow (15,115 lbs.) as compared to the Middle Profit and Low Profit groups. The Low Profit group averaged only 57.3 cows producing 11,203 lbs. of milk per cow.

Comparable size conventional dairy farms produced similar ROA in 2014 while producing more milk per cow but at a lower milk price. However, the organic dairy farmers have avoided the volatility of milk prices with consistent contract prices. Overall organic dairy has provided a lifeline for many smaller dairy farms to remain in business. However, the long term viability of the industry is challenged by an aging operator population and concerns over who will take over these farms with nearly 30% unable to provide a minimum $37,000 for family living.

Details

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