By Jen Miller, NOFA-VT Farmer Services Director
Organic dairy farms in Vermont vary widely in their characteristics and systems but two things that they all have in common is that they need to know their full cost of production (COP) and that COP needs to be below their pay price in order to have a viable business. This is the reason that year after year (for the last 15 years) first UVM Extension and now NOFA-VT collect and analyze cost of production data from 25 to 30 Vermont organic dairy farmers. What follows are the results from NOFA-VT’s 2019 and 2020 data collection and analysis efforts.
This article will focus on cost of production, as well as some key production metrics that tend to be tied to profitability, but not on comparing specific profitability measures across farms. Each participating farm received an additional profitability analysis but there are too many variables factoring into how profitable a farm is to make cross-farm comparison significantly meaningful here.
All 25 farms that contributed to these aggregated results are certified organic and feed grain to their herds. These farms are experienced in the management of organic systems having been certified for an average of 15 years. The size of the predominantly crossbred herds on these farms ranged from 24 to 185 animals with an average of 78 cows, reflecting the statewide herd size average for organic dairy farms. The average farm size was 303 acres which breaks down to an average of 3.8 acres per cow. The wide range of acres per cow from .71 to 7.93 acres is reflective of the different farm management approaches (i.e. variation in DMI from pasture, purchased feed operations vs. farms that grow all their own forages) among this group.
All farms had regular twice-a-day, year-round milking schedules, with the exception of one seasonal herd. Cows were milked and lived in a very diverse array of facilities, including three farms with robotic milkers. 60% of the 25 participating farms sold their milk to Organic Valley, 28% to Stonyfield, and 12% to Horizon, a breakdown which roughly reflects the percentage of Vermont farms selling to each milk buyer.
Starting in 2018, in NOFA-VT’s second year stewarding this organic dairy cost of production project, we transitioned to using DairyTRANS to analyze Vermont farmers’ COP. DairyTRANS was developed by Larry Tranel at Iowa State University and is being used in other areas of the country, enabling our COP results to be directly comparable to those from other regions. Because there are some economic methods applied to ensure that results are comparable across farms, it warrants a quick walkthrough of how COP is being calculated before we dig into the results.
The following table walks through how COP is calculated in DairyTRANS using the average of all participating farms’ data in 2019 and 2020 as an example.
|
Total Milk Sold (cwt eq.) |
12,950 |
This is the sum of total milk cwts. sold plus all other dairy-related income (ie. calves, hay, ag program payments) divided by milk price. No Covid payments were included in this amount. |
|
Total Cash Expense ($/farm) |
$ 339,451 |
Total cash expenses do NOT include interest payments |
|
Total Cash Expense ($/cwt eq.) |
$ 26.44 |
|
|
Balance Sheet Adjustments |
$ 21,238 |
Includes income and expense changes as well as the difference between capital purchase and capital sales. |
|
4% Equity Charge |
$ 44,630 |
4% of the FMV of all assets (cows, machinery, equipment, land). This is the opportunity cost of using assets for farming and substitutes for interest |
|
Unpaid Labor Cost |
$ 56,617 |
This is the opportunity cost of unpaid (owner) labor and management. Valued at $40,000 per FTE with one FTE set at 3,000 hours per year |
|
Total Cost ($/farm) |
$ 459,469 |
|
|
Total Cost ($/cwt eq.) |
$ 37.26 |
|
Results can be presented in terms of average, minimum and maximum metrics per cwt eq or by dividing farms into three equal-sized groups differentiated by having a low, medium, or high COP per cwt eq. As we walk through the results below we will primarily examine the 2019 and 2020 results as an average of the two years and present the data using the average alongside results for the low, medium, and high COP per cwt eq groups.
As a group, Vermont organic dairy farms produced an average of 1,182,900 lbs. of milk per farm and 15,663 lbs. per cow. When cwt equivalents were calculated, total production per farm increased to 1,295,000 lbs. The production per farm and per cow varied widely across low, medium and high cost groups. Higher production per cow in the low cost group is likely driven by the fact that these herds were primarily Holsteins or Holstein crosses and the three farms with robots were in this low cost group.
|
|
Average |
Low Cost |
Medium Cost |
High Cost |
|
Herd Size |
78 |
111 |
75 |
54 |
|
Total Milk Sold (cwt) |
11,829 |
18,501 |
9,955 |
7,565 |
|
Total Milk Sold (cwt eq.) |
12,950 |
20,359 |
11,048 |
8,054 |
|
Milk Per Cow (lbs/cow |
15,663 |
17,266 |
14,377 |
15,382 |
The average cost of production across all participating Vermont farms in 2019 and 2020 was $37.26; however there was a wide range across cost groups from an average of $32.43 in the low cost group to $42.77 in the high cost group. Expenses per cow did not vary much between groups while total expenses in the low cost group were almost double those of the high cost group. However, the low cost herds produced more than twice the milk per cow of the high cost group and had larger herd sizes (almost twice as large on average) then the high cost group. This leads to those higher expenses divided across higher milk volume, resulting in a lower COP per cwt eq.
|
|
Average |
Low Cost |
Medium Cost |
High Cost |
|
Total Cost($/farm) |
459,469 |
659,197 |
396,680 |
337,745 |
|
Total Cost ($/cow) |
$ 5,919 |
$ 6,038 |
$ 5,426 |
$ 6,253 |
|
Total Cost ($/cwt eq) |
$ 37.26 |
$ 32.43 |
$ 35.89 |
$ 42.77 |
The top five cash expenses for these organic dairy farms were purchased feed (41%), hired labor (10.2%), repairs (7.2%) supplies (6.1%), and custom hire (5.2%). Purchased feed includes grain, minerals, and forages. Farms in the low cost group spent the highest dollar amount on grain and yet the percentage of farms’ budgets spent on grain is roughly equivalent across COP groups. The medium cost group spent a higher percentage of their feed budgets on purchased forages compared to the low and high cost groups. Since acres per cow are similar across cost groups, it will need to be determined as to whether this is the result of challenging weather conditions or if purchasing more forages rather than making their own is an intentional cost-reduction strategy of the farms in that group.
The fifth highest expense category for farms was the cost of custom hire services. Farms in the low COP group had the highest custom hire expenses at $1.64 per cwt eq compared to $.91 per cwt eq for both medium and high cost farms. The majority of the farms in the low COP group had custom hire expenses which were most commonly spreading, chopping, and hoof trimming. It should be examined as to whether larger farm sizes in the low cost group drove the expense difference or if in fact hiring out more services is a strategy that could be adopted more widely to lower COP on dairy farms.
One FTE was assigned per every 3,000 hours of paid and unpaid labor contributed. On average, these organic dairy farms rely on 2.8 FTE to operate and produce 4,407 cwt eq per FTE; on most farms the owner(s) work hours were equivalent to between one and two FTEs. These numbers vary widely when broken down across cost groups. The low cost group has less than half the hired labor expense as the other two cost groups with each of their FTEs managing 12 to 18 more cows. Infrastructure and management style that lead to efficient labor systems mean more milk sold with lower labor costs, a well-known fact again demonstrated by these results.
|
|
Average |
Low Cost |
Medium Cost |
High Cost |
|
Full Time equivalents (FTE) |
2.8 |
2.8 |
2.8 |
2.7 |
|
Cows per FTE |
28.5 |
40 |
28 |
22 |
|
Milk sold per FTE (cwt eq.) |
4,407 |
7,002 |
3,882 |
3,328 |
|
Labor Earnings per Hour |
$ 8.67 |
$ 15.76 |
$ 6.66 |
$ 3.41 |
|
Unpaid labor hours |
5,642 |
6,399 |
5,050 |
5,406 |
Over the past five years, the number of organic dairy farms in Vermont has declined from 203 in 2016 down to just 167 at the end of 2021. It is no coincidence that this decline aligns with the reduction in pay price for organic milk that happened during this time period. The pay price used to cover the full cost of production of organic milk while leaving some profit left over for the necessary expenses that are typically the first to get cut such as savings for emergencies and replacement of capital items and increases to family living allocations to keep pace with the cost of living. The shrinking gap between COP and pay price over the past three years is now becoming even more problematic as farmers are facing steeply rising input costs due to global politics and economic conditions, climate variation and weather events, and farm improvement investments that are required, necessary, or both. We have already begun 2021 data collection visits this year and are seeing the effects reflected in many farmers’ COP. It is clear that if we want viable organic dairy farms to remain as integral parts of our agricultural economies and working landscapes, we need the gap between COP and pay price to widen once again.
To download the full set of 2019 and 2020 COP results, visit:
https://nofavt.org/resources/organic-dairy-project-overview
Thanks to our participating farmers and the support of our project sponsors: Organic Valley, Stonyfield, Morrison’s Custom Feeds, Yankee Farm Credit, Farm Credit East Ag Enhancement, Upstate Niagara Cooperative. And thanks also to Bill Cavanaugh (NOFA-VT), Sarah Flack (independent consultant), Sara Ziegler (UVM Extension), and Heather Darby (UVM Extension) for their collaboration.
Jen Miller, Farm Services Director, NOFA-VT, can be reached at jen@nofavt.org, or (802) 434-4122, ext: 7159.
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