Dont go organic just for the milk premium

By Robert Davies

A LEADING consultant is warning milk producers to beware of going organic just to chase the milk price premium.

Aberystwyth-based Dan Powell, of Gair Professional, urges would-be converters not to fall into the trap of comparing organic and conventional production only on current milk prices, or simply on a margin a cow or ppl basis.

Margin per hectare and whole-farm figures are much more accurate measures as they reflect the stocking rate and yield differences, claims Mr Powell, who until recently worked at the Welsh Institute of Rural Studies.

“The financial support available for conversion and higher prices associated with organic dairy farming can make converting attractive, but farmers have to do their sums first.”

He admits the physical and financial parameters widely used to compare the performances of herds make organics look attractive.

In a paper prepared for the Welsh Dairy Club Mr Powell uses Milk Development Council and WIRS figures to compare different ways of managing a 65ha (156-acre) farm.

Running a conventionally managed herd of 115 cows stocked at 2.2/ha (0.9/acre) the yield will be 6700 litres a cow from a 1600kg of concentrate.

A milk price of 18ppl generates an output of 2623/ha (1093/acre), variable costs will total 341 a cow and the gross margin is estimated at 851 a cow.

Stocking rate would be lower if the same area is farmed organically – say 86 cows stocked at 1.65/ha.

The yield will be 6000 litres a cow from forage and 1100kg of concentrates a head.

Assuming that organic concentrate costs 155/t, or 30/t more than conventional cake, a milk price of 29ppl will give an output of 2843/ha (1184/acre).

The organic herds variable cost bill will be 305 a cow and the gross margin 1418 a cow.

But in his paper, Mr Powell warns that the different stocking rates make the gross margin a cow figure misleading.

The narrower 220 difference in output a hectare is a more accurate measure.

He also cautions against looking at margins in terms of ppl figures. With a milk price of 29ppl the organic system has a ppl margin almost 130% higher than the conventional system.

“But if we take total milk output, stocking rate and fixed costs into consideration, this benefit drops to 47%.

“If the organic milk price drops to 25ppl the benefit drops to 54% on a ppl comparison.”

At the lower organic milk price the ppl margin advantage disappears if the whole farm output set against costs is taken into account.

Potential converters should consider the effect on whole farm output, which will vary according to initial stocking and site potential, he warns.