How organic dairies differ

Large organic dairies are much more likely to generate returns above capital and labor costs, suggesting that organic milk production will migrate toward larger operations, as has conventional production, according to a USDA Economic Research Service costs study. The smallest organic operations use much more unpaid labor, accounting for most of this cost difference.

Additional costs to comply with organic pasture requirements and for securing organic inputs in large volume may limit the cost advantages for larger organic dairies, reports authors William D. McBride and Catherine Greene.

Regional organic differences

More than 80% of U.S. organic dairies are located in the Northeast and Upper Midwest, but these operations are smaller and less productive than those in the West. Organic dairies in the Northeast (averaging 53 cows) and Upper Midwest (64 cows) have far fewer cows on average than those in the West (381 cows), which produce more milk per cow on average — 2,700 pounds more than in the Upper Midwest and 4,000 pounds more than in the Northeast.

Key Points

• The average price premium for organic milk was $6.69 per cwt.

• Total costs are $1 per cwt. higher than the average price premium.

• Western organic dairies have lower total costs per hundredweight of milk.

Average feed costs per cow, however, are lower on organic dairies in the Northeast and Upper Midwest due to greater use of homegrown feed and pasture. Despite higher feed costs per cow and greater labor and capital use, organic dairies in the West have lower total economic costs per hundredweight of milk produced. This cost advantage is the result of economies of size and much higher productivity per cow, that may be attributed to the technologies used on these operations.

Almost two-thirds of organic dairies report that 50% of dairy forage comes from pasture, and a third indicates that 75% or more comes from pasture. Using pasture for dairy feed costs less than higher-energy feed sources, and average feed costs per cow decline as more pasture is used for dairy forage. Organic dairies using the least pasture for dairy forage, however, have lower feed costs per hundredweight of milk than other organic dairies, because average production per cow is more than 30% higher. Organic dairies that use conventional feeding methods, such as confining cows and feeding harvested forages, may generate higher returns to capital and labor than those using pasture-based feeding because of higher production and economies of size, and because pasture-based feeding requires more labor.

Here are some differences:

• Organic dairies paid $6.37 per cwt. more than conventional ones in operating and capital costs, including transition costs, in 2005; average price premium for organic milk was $6.69 per cwt.

• Total economic costs of organic dairies in 2005 were $7.65 per cwt. higher than for conventional dairies, and nearly $1 per cwt. higher than the organic premium.

Major challenges

Certification paperwork and compliance costs were reported by 40% of producers as the most challenging aspect of organic milk production, followed by finding new organic input sources (dairy replacement and feed), higher costs of production and maintaining animal health.

By contrast, the chief concern for large organic dairies seem to be finding organic input sources, and the chief concern for dairies in the Northeast seemed to be production costs. Certification paperwork was a lesser concern for pasture-based dairies and more educated operators.

The 2005 USDA survey targeted dairy operations in 24 states that accounted for more than 90% of national milk production and covered all major production areas. A subsample of the survey targeted organic dairies identified by major organic milk processors and certifiers.


PASTURE CUTS COSTS: Almost two-thirds of organic dairies report that 50% of dairy forage comes from pasture, and one-third of them indicate that 75% or more comes from pasture. These cows graze in Sonoma County. NRCS photo

This article published in the August, 2010 edition of CALIFORNIA FARMER.

All rights reserved. Copyright Farm Progress Cos. 2010.