Team G

Comparing the Sustainability of Conventional and Organic Dairy Farming - Which is Better for a Community?

Johnathan Brunner, Joshua Gerbitz

  OrganicFactories.png   https://beyondpesticides.org/dailynewsblog/2019/11/tell-usda-to-stop-organic-factories-from-milking-conventional-dairy-cows/


Scenario

We aim to analyze the effects of organic and conventional dairy farming on the environment and the bottom line as a business. We plan to use concrete data to compare the two systems to better understand which is actually more sustainable. The perspective that we have selected is that of agricultural investors aiming to identify the most profitable and marketable dairy production method. Profitable for the purpose of our return on investment, and marketable for the purpose of convincing local governments and boards that our investment will help their community in addition to turning a profit.


Abstract

The USDA defines organic as “A labeling term that indicates that the food or other agricultural product has been produced through approved methods.” We seek to answer this question and others on the subject, evaluating the economic, social, and environmental advantages of both conventional and organic dairy farming. The factors surrounding this occurrence and the drivers that make systems profitable and sustainable are very broad and have many layers to be unpacked. The markets for the products are varying and production models raise the question of which is actually more sustainable, especially economically. Through research on previous studies and outcomes, we have found that:

 

  • The importance of the price of milk has led to organic dairy farms being the most effective at supporting local economies.
  • Organic dairy production models were found to be more environmentally friendly in terms of pollution and soil health, due to requirements that prevent organic farms from using certain chemical fertilizers and pesticides.
  • Stigmas and individual preferences about organic dairy products have an effect on the profitability of organic and conventional dairy farming systems, the most important of these being the ability for organic producers to charge more for their products.
  • Farm demographics are generally not significantly different however conventional farms are generally larger.
  • The input prices for organic dairy systems are actually lower than that of their conventional counterparts, although they produce less milk, organic farms still generate more revenue per cow per year due to the higher milk prices. 

 

We have elected to direct our investment into organic dairy farms. This is due to organic dairy production being more profitable and more marketable to communities. The difference in profitability mainly stems from organic producers being able to charge more for a gallon of milk. Due to this and other factors that affect local communities, organic dairy production is also more marketable.

 


Introduction

Organic and conventional farms employ millions of workers across the US, and each system has its own benefits and drawbacks. Looking to provide the maximum economic, social, and environmental benefit to the local community, we decided to research and compare conventional and organic dairy farming systems. In recent years, large “factory farms” have been swallowing up their smaller competition. These rapidly disappearing small farms provide more benefits to the communities that they exist in than the industrial farms that are replacing them. Investing in a small scale dairy farm will provide quality jobs to local workers and will also have a drastically smaller impact on nearby ecosystems. But we must determine which production method to use for this farm: organic or conventional. To decide, we will compare input prices, consumer perceptions and stigmas, effects on the local economy, environmental effects, and farm demographics.


Research Question

Which dairy production method would better benefit the local community and be more profitable to investors: organic or conventional?


Methods

  • How do the input prices between the two production systems compare?

 

To fully understand the input prices the output prices also have to be understood. Although organic cows generally make much less milk than their conventional counterparts they generate more income due to the better price point for organic milk. Additionally, even though individual inputs may be more expensive the price of the inputs overall are less on organic farms. That means that a load of organic bedding purchased costs more than the conventional bedding, but organic farms have fewer inputs in general making the overall price of their inputs lower. A few of these major cost drivers include feed costs, fertilizer, trucking, and labor. IN one study this showed a 6 fold increase in profit for the organic dairies. 

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(Walsh)

To further understand this there was a study done comparing small conventional farms with organic farms they found that the organic advantage increased even more. This lead to a profit of around $600 more per cow per year on the organic farms when compared to the small conventional farms. 

 

Overall the findings in regards to input costs showed that the inputs on organic dairies are cheaper than they are on conventional dairies. In some situations the efficiencies captured on conventional dairies negate the added expense and can still be more profitable, however in other cases the organic system with the higher value for the milk and lower input costs proved to be more effective even with depressed production rates.  

 

  • How does the current consumer perception affect the viability of each system?   

  

To answer this question, we first looked at a study performed in Germany that found that fake organic labels were just as effective in convincing consumers to purchase products as real organic labels. This strengthens the argument that organic foods are “credence goods”, meaning that their quality cannot be ascertained even after purchasing the goods. This causes some consumers to view organic products as luxury goods, allowing producers to charge higher prices for these goods. The fact that a credence good can also be viewed as a luxury good is proof that consumer preferences can be influenced by stigmas in our society.

These stigmas stem from the way that organic products are produced, and the way that this method of production is viewed by consumers. Because of these stigmas, many consumers automatically equate “organic” with “good”. In addition to this, the positive connotation of the word “organic” leads consumers to assume that the process of producing organic dairy products is more humane for the animals involved. This is partially true, because the requirements for organic classification dictate that organic livestock be raised on organic land, and that they cannot be given growth hormones. However, they are not allowed to receive antibiotics, so they are not given the same level of healthcare as conventionally raised livestock. A study in Norway found that organic dairy cows were far less likely to be given veterinary care when sick.

 

Overall, stigmas about organic dairy products have a sizable effect on the profitability of organic and conventional dairy farming systems due to their effect of charging higher prices for organic products, and this needs to be taken into account when determining which production system to choose.

 

  • How does each system affect the local economy?                                                                                                       (Walsh)

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It is vital to understand how these systems each affect the local economy, because without a strong economic incentive, people would likely oppose the introduction of a dairy farm in their communities. Studies performed in Vermont have shown a trend of conventional dairy farmers switching over to organic production because it is thought to be more profitable. Is this switch working? And if so, why?

 

Maximizing feeding management, farm management, farm size, milk price, and input costs results in the most profitable dairy farm. Using 10 years of data, the study in Vermont determined that milk price is the most important of these variables. This results in organic farms being economically superior because organic milk is intrinsically priced higher than conventionally produced milk. Communities supported by dairy farms have been devastated by milk oversupply and price reductions in recent years, making profit margins more important than ever. Because organic milk prices result in more profits for dairy farms, employees are paid higher wages and the general welfare of the community is improved.

 

From 2009 to 2011, organic dairy farms in Vermont and Minnesota outperformed conventional dairy farms in output, job creation, labor income, and gross state income. This data makes it clear that organic dairy farms are the most effective at supporting local economies.

 

  • What are the environmental effects associated with each model?

 

In order to have the maximum positive effect on the community that the farm is built in, it is important that the chosen farm system has the least amount of negative environmental impact. Protecting natural resources for future generations is vital, so food production systems must minimize pollution and keep the soil healthy.

 

Studies performed to answer this question found that organic dairy production systems had less nitrogen runoff and leaching into nearby ecosystems. In addition to this, organic systems have little to no pesticide risk, as organic classification requirements prevent the use of most chemicals used on conventional farms. Studies on land use, deforestation, ozone depletion, aquatic ecotoxicity, terrestrial ecotoxicity, demand for non-renewable energy, and other, less environmentally significant categories have demonstrated that organic farming techniques have a positive effect on each of these variables that are applicable to the farms studied. Because of these factors, organic dairy farming systems have a much lower environmental impact than their conventional counterparts.

 

  • How do the farm demographics of the different systems compare?

 

Every farm is different. This includes how the cows are housed, fed, and milked among many other factors. Many people picture the typical organic farm with the cows out on pasture and being milked in a tall red barn with a hay mow. In all reality the statistics between the milking facilities of conventional and organic farms show that the two systems use the different methods in a statistically similar way. Both models have about thirty-five percent of herds milking in a parlor and fifty percent of herds milking in a tie stall barn with the rest of the herds milking in a different fashion. Although this may not directly correlate to a profit or deficit for either system it does go to show that the two systems may be more alike than different. 

 

Other categories have more discrepancies between the two models. For example, conventional and organic dairies tend to use different technologies on their farms. This limits the studies that are comparing technology use to solely those that are comparing organic to conventional. This makes data for farm size very difficult to compare. With that being said according to many of the studies we used in this project it is very common for the sample farms in each group to be different sized and generally the case is that the conventional farm is larger. This creates a conflict that has to be granted when comparing the two types of farms. When comparing conventional farms of different sizes, it has been found that the larger farms are usually more profitable overall and on a per cow basis than the smaller farms. The farms larger than 500 cows had a greater return on assets by a few percentage points. This makes comparing the two systems difficult because if you compare organic farms with conventional farms that are the same size they outperform them in general. However, if you compare the average conventional and organic farm it is much closer in terms of profitability. 

 

Beyond that, organic farms are less likely to allow outside animals to enter their farm especially given the potential for disease to enter the herd. They are also less likely to use DHIA and less likely to have regular visits from the veterinarian. Finally, organic herds are less likely to use footbaths and obviously use less antibiotics. These factors again add a challenge to the comparison of the systems knowing the similarities to these factors and that of a low input conventional grazing system.

 

Overall, we can say with some amount of confidence that the demographics surrounding each management system are similar in many areas with a lot of the differences coming in more minor areas. This makes the herd demographics less vital in the comparison of the two systems. 


Results

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https://www.ers.usda.gov/amber-waves/2020/september/organic-dairy-farms-realized-both-higher-costs-and-higher-gross-and-net-returns-than-conventional-dairy-farms/

  • The importance of the price of milk has led to organic dairy farms being the most effective at supporting local economies.
  • Organic dairy production models were found to be more environmentally friendly in terms of pollution and soil health, due to requirements that prevent organic farms from using certain chemical fertilizers and pesticides.
  • Stigmas and individual preferences about organic dairy products have an effect on the profitability of organic and conventional dairy farming systems, the most important of these being the ability for organic producers to charge more for their products.
  • Farm demographics are generally not significantly different however conventional farms are generally larger.
  • The input prices for organic dairy systems are actually lower than that of their conventional counterparts, although they produce less milk, organic farms still generate more revenue per cow per year due to the higher milk prices.

Summary/Conclusion/Recommendation

Based on the research used for this project, the best choice for our production system is organic. The various studies cited show that the organic systems generate more revenue per cow, have lower input prices, and have been more environmentally friendly. The stigmas surrounding organics has helped their sales to generate a higher value product and has helped farms do a better job in their local economy. We believe the organic system would give us the best return on investment and also be the most sustainable environmentally. This decision would also serve our community well.


About the Authors

Johnathan Brunner - I am a junior at the University of Wisconsin-Madison, majoring in Economics with certificates in Development Economics and Food Systems. I grew up in the suburbs of Chicago, but became interested in agriculture while living and studying in Wisconsin. I was attracted to the topic of organic vs conventional dairy farming because of an Agroecology course I took previously that debunked some of the myths surrounding organic food production.

 

Josh Gerbitz - I am a junior at the University of Wisconsin-Madison, studying Dairy Science with a certificate in Agricultural Business Management. I have been involved with dairy ever since I was young. My background has been on conventional farms, so I was interested in learning more about specifically the economics of organic farming because it was a completely new perspective for me. I was very surprised to learn that the input cost were lower and they had greater economic gains per cow. 


References

Walsh, J., Parsons, R., Wang, Q., & Conner, D. (2020). What makes an organic dairy FARM profitable in the United States? Evidence from 10 years of Farm level data in Vermont. Agriculture, 10 (1), 17. doi:10.3390/agriculture10010017

O’Hara, J., & Parsons, R. (2013). The economic value of organic dairy farms in Vermont and Minnesota. Journal of Dairy Science, 96 (9), 6117-6126. doi:10.3168/jds.2013-6662

Stiglbauer, K., Cicconi-Hogan, K., Richert, R., Schukken, Y., Ruegg, P., & Gamroth, M. (2013). Assessment of herd management on organic and conventional dairy farms in the United States. Journal of Dairy Science, 96 (2), 1290-1300. doi:10.3168/jds.2012-5845

Repar, N., Jan, P., Nemecek, T., Dux, D., & Doluschitz, R. (2018). Factors affecting global versus local environmental and economic performance of dairying: A case study of swiss mountain farms. Sustainability, 10(8), 2940. doi:10.3390/su10082940

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Pacini, C., Wossink, A., Giesen, G., Vazzana, C., & Huirne, R. (2003). Evaluation of sustainability of organic, integrated and conventional farming systems: A farm and field-scale analysis. Agriculture, Ecosystems & Environment, 95(1), 273-288. doi:10.1016/s0167-8809(02)00091-9

Vayssières, J., Guerrin, F., Paillat, J., & Lecomte, P. (2009). GAMEDE: A global activity model for evaluating the sustainability of DAIRY enterprises Part I – WHOLE-FARM dynamic model. Agricultural Systems, 101(3), 128-138. doi:10.1016/j.agsy.2009.05.001

Hafla, A., MacAdam, J., & Soder, K. (2013). Sustainability of US organic beef and dairy production Systems: Soil, plant and cattle interactions. Sustainability, 5(7), 3009-3034. doi:10.3390/su5073009

Lähdesmäki, M., Siltaoja, M., Luomala, H., Puska, P., & Kurki, S. (2019). Empowered by stigma? Pioneer organic farmers’ stigma management strategies. Journal of Rural Studies, 65 , 152-160. doi:10.1016/j.jrurstud.2018.10.008

Meyerding, S. G., & Merz, N. (2018). Consumer preferences for organic labels in Germany using the example of apples – COMBINING CHOICE-BASED conjoint analysis and eye-tracking measurements. Journal of Cleaner Production, 181 , 772-783. doi:10.1016/j.jclepro.2018.01.235

USDA, AMS. (n.d.). Organic Standards . https://www.ams.usda.gov/grades-standards/organic-standards. 

Dong, F., Hennessy, D. A., Jensen, H. H., & Volpe, R. J. (2016). Technical efficiency, herd size, and exit intentions in U.S. dairy farms. Agricultural Economics , 47 (5), 533–545. https://doi.org/10.1111/agec.12253 

Stephenson, A, W. C., Knoblauch, W. A., & Novakovic, A. M. (2016). Dairy farm financial performance: firm, year, and size effects. Agricultural Finance Review, 76(4), 532-543. http://dx.doi.org.ezproxy.library.wisc.edu/10.1108/AFR-02-2016-0009





 




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