Dairy converts cash in?

14 August 1998

Dairy converts cash in?

DAIRY farms converting to organic status achieve better financial performance than commercial farms and do not suffer the high costs of conversion that they feared.

Speaking at the conference, Sue Fowler, Welsh Institute of Rural Studies researcher and former organic inspector, told delegates that a recent MAFF-funded study of nine organic holdings had seen gross margins/cow of £1031 for organic units compared to £880/cow for commercial units.

Similarly, gross margin/ha was £1547 (£626/acre) for the organic holdings and £1501/ha (£607/acre) for commercial units, said Ms Fowler. Figures included performance data from IGERs 80-cow Ty Gwyn farm, which has converted to organic production.

"Those who convert over a period of time have seen incomes above commercial units. The organic option has in some cases given an improvement in technical management and performance by rejuvenating producers interest."

While milk sales were lower for organic systems (table 1) releasing assets such as quota boosted income, while better management meant conversion costs amounted to only £50/ha/year (£20/acre).

Lower output and stocking rates can be compensated by lower variable costs of organic production and premiums paid for milk. Increased income from leasing out excess quota and the reduction in variable costs compensate for the anticipated losses during the conversion period, said Ms Fowler.

However, producers wont see lower costs across all areas of production, she warned. "Typically, concentrate and vet costs may be higher as organic alternatives tend to be more expensive."

However, performance of organic units was reliant on receiving a premium for milk, without which gross margin/cow fell below the commercial figure of £880/head to £807/head (table 2), added Ms Fowler.

Table 1: Comparison of revenue change (%) over conversion period*

Conventional Organic

Milk yield 6 1

Milk price 8 7

Quota -50 7

Output/cow 12 12

Variable costs 10 -11

GM/cow 14 21

*Base is 100%, costs over a three-year period.

Table 2: Comparison between commercial and organic with/without premium (based on 1996 figures)

Organic plus premium Commercial Organic minus premium

Price/litre (ppl) 28 24.5 24.5

Output/cow (£) 1493 1454 1296

GM/cow (£) 1031 880 807

GM/ha (£) 1547 1501 1211

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