February 25, 2010


US organic milk output five-year boom slows



Despite being more costly to produce, organic milk production more than tripled in five years, but more recently, growth has slowed in the wake of the weaker US economy.


Organic milk production has been one of the fastest growing segments of US organic agriculture. Between 2000 and 2005, the number of certified organic milk cows increased an average of 25% each year to more than 86,000 in 2005.


Organic milk cows comprised only about 1% of all US milk cows in 2005. USDA estimates that organic milk's share of US fluid milk sales increased from 2% in 2006 to 3% in 2008. Rapid growth in the sector has recently slowed, however, as a weaker US economy dampened demand for organic food products.


Organic milk production costs exceed conventional costs mainly due to higher feed costs and more intensive use of labour and capital per hundredweight (cwt) of milk produced. Organic operating costs were an estimated US$4.78 per cwt higher than that of conventional dairies in 2005. Estimated operating and capital costs for organic dairies, including costs incurred during transition, were US$6.37 per cwt higher than for conventional operations.


Organic dairies average 82 cows versus 156 cows for conventional dairies. The small size of organic dairies contributes to higher labour and capital costs per cwt of organic milk produced.


In addition, milk yields on organic dairies are about 30% less than on conventional farms. Using pasture as a source of dairy forage is more common on organic dairies, helping reduce feed costs per cow, but also contributing to lower production per cow.


Most organic dairy operations are small; 45% milk fewer than 50 cows and 87%, less than 100 cows. While only about 13% of organic dairies have 100 or more cows, they account for nearly half of organic production. About a third of cows and production come from organic dairies with 200 or more cows.


The continued shift of production to large conventional dairy farms indicates that declining average costs of production per unit as the operation grows - referred to as economies of size - play a major role in the structure of dairy farming.


According to reports, an examination of the relationship between average production costs and size among organic dairies is strikingly similar to that for conventional dairies, only at higher costs.

Several small organic dairies appear to be earning enough to cover operating costs, but not the opportunity cost of their investments in capital and operators' time.


Large organic dairies are much more likely to generate returns above capital and labour costs than smaller operations, suggesting that organic production will migrate toward larger operations, as has conventional production.


However, the additional costs of complying with organic pasture requirements and securing large volumes of organic inputs may limit the cost advantages of much larger organic dairies.