A Comparison of Conventional and Organic Milk Production Systems in the U.S

Organic milk production is one of the fastest growing segments of organic agriculture in the U.S., but little is known about the relative costs and returns of organic and conventional dairies. This study utilizes a nationwide survey of dairy operations for 2005 that includes a targeted sample of organic dairies. Treatment-effect sample-selection models were specified to isolate the impact of choosing the organic approach on various levels of milk production costs. Size and location of dairy operation were among the primary factors affecting choice of the organic approach and milk production costs. Organic dairies had production costs about $5 to $7 per cwt higher than conventional dairies and received an average milk price premium of $6.69 per cwt. Results suggest that there may be incentives for small conventional dairies to covert to the organic approach, but probably not for startup organic dairies unless they can enter at a much larger scale than the current industry norm. *The authors are with the U.S. Department of Agriculture, Economic Research Service. The views expressed herein are those of the authors and do not necessarily reflect the views or polices of the U.S. Department of Agriculture. Direct any correspondence to: [email protected] , (202) 694-5577. A Comparison of Conventional and Organic Milk Production Systems in the U.S. Organic milk production is one the fastest growing segments of organic agriculture in the U.S. Between 2000 and 2005 the number of certified organic milk cows on U.S. farms increased by an average of about 25 percent each year, from 38,000 to more than 86,000 (USDA, Economic Research Service, a). Many of these cows are on small dairy operations that have switched to the organic approach with the hope of improving farm profitability. Despite the growing number of organic dairy operations there is little information about the relative costs and returns of organic and conventional milk production and the farm characteristics of those that have chosen the organic approach. Studies by Dalton et al., Butler, and Barham et al. are among the few examples of information on this subject, but nothing is available on a national basis. Organic milk production systems rely on ecologically based practices that virtually prohibit the use of antibiotics and hormones in the cow herd and the use of synthetic chemicals in the production of cattle feed. Organic milk production systems also attempt to accommodate the animals’ natural nutritional and behavioral requirements, for example ensuring that dairy cows have access to pasture (Greene and Kremen). These requirements add to production costs and create obstacles to widespread adoption, such as higher managerial costs and risks of shifting to a new way of farming, and significant time and costs associated with the transition to organic production. This study utilizes data collected from U.S. dairy operations for 2005 in a comparison of conventional and organic milk production systems. One objective is to describe characteristics