Organic dairy farming: cost of production and profitability

Organic milk production in the European Union (EU) costs more than conventional production and therefore requires a price premium (15-25%) and an increase in direct payments to ensure the same level of profitability. In European comparisons, milk yields per cow are lower (9-30%) and stocking rates are also 20-40% lower due to lower yields in forage production. The International Farm Comparison Network (IFCN 2003), comparison between organic and non-organic farms in the EU calculated 22-37% higher costs of production. Similarly the cost increase measured in California ranged from 13-23% for organic versus conventional milk production. However comparisons between low producing and low cost systems as described by MafPolicy (2002), and for the Argentinean farms compared by IFCN (2003), suggested a minimal increase of 3% in costs. This paper compares the cost of production and profitability of organic and conventional dairy farming over the first three years of a Massey University system comparison trial. The difference between these pastoral farming systems was predicted to be less than that noted in the more intensive EU and US dairy farming systems as minimal changes are required to achieve organic certification. Recognising that the organic farm has only just achieved certification and has not yet reached its steady-state, the results highlight the vulnerability of both pastoral systems to climatic variability and identify the additional risks of organic dairy systems.