Organic Dairy Cost of Production

May 29, 2024

When my own family’s dairy farm transitioned to organic in 1997 there was high demand from consumers and processors for organic dairy products. Producers found themselves in one of the best financial positions a business could hope for. These farmers could easily negotiate their pay price to processors. Some dairy farms considered this an easy decision for their operations; rather than struggling to scale up their production capacity, and potentially become a confinement operation, they now had an opportunity to increase income while remaining small and pasture based. Within a few years it became apparent that Maine’s roughly 400 dairy farms needed a safety net. In 2003 the Maine Dairy Stabilization “Tier” Program was born. Its structure is based on the Maine Milk Pool Cost of Production numbers. When farms transitioned to organic and received a premium pay price, this complicated the calculations, and so organic dairy producers in Maine have operated without knowing their average cost of production (COP) since their inception.

Over time, those original premium pay prices have been eroded by a variety of factors. Margins for organic dairy farmers have slimmed down, and staying in business at their current scale has become a losing battle. Other states in New England were working to calculate COP for dairy farms in an effort to help dairy farmers better understand their financials and make solid business and succession decisions. While Maine is sometimes envied for its Dairy Tier Program, our organic agricultural service providers and policy advocates remained unable to lift up and compare where Maine’s organic dairy farmers averaged into the overall equation of milk produced in the Northeast. Dairy farmers individually know what it costs them to produce organic milk, but there was no state average.

Members of MOFGA’s farmer programs department, including myself and Nicolas Lindholm, MOFGA’s organic business and marketing specialist, have worked together to visit farms and collect basic financial data from fiscal year 2022 in an effort to get an average COP for organic dairy farmers willing to participate in this study. This project works to maintain anonymity of participants and has no intentional impact on the Dairy Tier Program. The intention is for Maine organic dairy to speak impactfully to a regional or even national audience about what challenges Maine organic dairy farmers truly face and to empower individual farms to know their own COP, and help them make targeted business decisions.

Though this work will be ongoing, the pool of participants is currently small, and the average COP for 2022 currently stands around $33 per hundredweight (cwt). The base price farmers were getting paid was $29.21 per cwt that year, and there were no Tier payments since these are based on conventional dairy’s pay margin triggers. Additionally, many dairy producers were forced to buy forage after experiencing repeated years of drought. Last year left us with unprecedented rainfall and cloudy days. Understanding these kinds of trends helps MOFGA to better advocate for Maine’s organic farmers.

The timing of this work dovetails with overall industry trends of small northeastern dairy producers showcased at the recent Northeast Dairy Innovation Summit held in Albany, New York, in early April. This summit shined a spotlight on dairy farms in the Northeast having weight in the U.S. dairy market but stressed the importance of working together to maintain and strengthen their place in that market. The consumer population is here in the Northeast. The access to grazing is here in the Northeast. The desire for more processors is here in the Northeast. With sound financial data our future in dairy is here in the Northeast — and here in Maine, on our small organic dairy farms.

– Jacki Martinez Perkins, MOFGA’s Organic Dairy and Livestock Specialist

This article was originally published in the summer 2024 issue of The Maine Organic Farmer & Gardener. Become a MOFGA member to support these free resources and receive our quarterly newspaper, which is considered to be one of the leading information sources on organic agriculture and sustainable living practices.

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