Organic switch pits extra income against transition cost - The lure at present is a reported $50,000 more a year for 60 cows and six extra incentive days

By John Greig, Ontario Farmer staff, Tuesday, March 20, 2007

A 60-milking cow organic dairy farm can net $50,000 per year more than a conventional farm. That's what an analysis of cost of production differences between organic and conventional dairy farmers showed OMAFRA's Jack Rodenburg.

Rodenburg cautions that dairy farm profitability varies greatly in both conventional and organic. To calculate his cost of production, he added the inceased cost of organic feed, certification costs and increased labour to get organic cost of production, then factored in the 21-22 per cent premium most organic dairy farmers are getting these days and came up with the figure of $49,932 per year.

"That's substantial. That's clearly, clearly more than the fees," Rodenburg told an information meeting last week put on by OMAFRA, Organic Meadow and Harmony Organic Dairy.

The meeting featured a farm tour and a speaker program. More than 100 people attended, almost all dairy farmers, and the turnout so surprised the organizers that they had to rapidly change venues for the speaker program while visitors were out on the farm tour.

Rodenburg also went over what would have to happen on a farm to lose that $50,000 advantage. He estimated the number on an organic farm averaging 26 litres per cow per day.

That would include a drop of 2.6 litres in production, the death loss of 24 cows or a dramatic decrease in fertility.

He also calculated the cost of transition to organic farming, which he estimated would cost $83,000 for a 60-cow farm. Paying the interest on that would be about $5,000, which would still leave an advantage of $45,000 per year once a herd was certified.

The meeting also heard a lot about six incentive days which have been given to organic dairy farmers by Dairy Farmers of Ontario to encourage more production. About half of those incentive days are being used. To purchase that much more quota would cost more than $300,000.

Members of the Dairy Farmers of Ontario board refused to be pinned down on how long the six incentive days would exist. They are currently being renewed yearly by the board.

Lloyd Wicks, a DFO board member who has been an advocate of accommodating organic production within DFO, said that while he couldn't speak for the whole board, he said the board is in favour of anything which would help fill a milk niche which isn't currently being filled.

Steve Cavell, CEO of Organic Meadow, a co-operative which is the largest processor of organic milk in Ontario, says he doesn't see demand for organic milk declining anytime soon.

The market for organic milk is now being 70 per cent filled by Canadian production, and while there are many new organic dairy farms due to come into production in the next few years in Ontario, the market is still expected to grow at about 20 per cent per year.

Organic milk is only currently a half a per cent of the Canadian milk market. In the U.S. it is four per cent.

There are discrepancies in the organic milk market across Canada. A vertically integrated processor and producer with several farms is dominating production in British Columbia. Across the prairies the market and the production of organic milk is small, but that is expected to change eventually.

Quebec has reached a strange position where there is an organic milk price war, where organic milk consumption has been stagnant and could even decline, says Cavell. Halifax is one of the leading markets for organic milk and eight dairy farms are in organic transition in the Maritimes.

But it is Ontario where the continued market growth will be centered. Cavell says there are opportunities for diversifying the organic dairy line.

"But this is only if the supply keeps up, which is why I show up in Maxville, why I show up in Kemptville, why I show up in Woodstock. We need more milk."

Others at the meeting warned that switching to organic production can't just be done for the money.

"My sincere hope is that the main attraction is not just the milk premium and six incentive days we have," said Lawrence Andres, a Kincardine-area dairy farmer and one of the owners of Harmony Organic Dairy. "You have to go through an inner transition in your mind."

Grant Martin, an organic dairy farmer, whose milk is processed by Harmony, milks 60 cows in a Master Breeder herd with his father. He also said "the biggest impediment is in your head". He warned potential organic farmers that rural resistance to change can be a drag on someone converting to organics.

Martin takes a practical approach to the extra paperwork involved in being organic certified.

"Successful businesses do write down their goals and chart their progress," said the University of Guelph graduate.

Organic dairying also is a good strategy as uncertainty continues in the mainstream milk market.

"Your market as milk producers is severely threatened and challenged," said Rodenburg. This is one piece of it that is going to continue to grow. For your risk management, this is a good place to be."

 

 

The Organic Agriculture Centre of Canada (OACC) wishes to thank Ontario Farmer for permission to reproduce this article on our website.

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Posted July 2007