Organic Dairy Economics

The Economic Superiority of Organic Dairy

Written by Brian Hicks
Posted December 3, 2012

The Union of Concerned Scientists has recently published an excellent report on the economic benefits of organic dairy farms.

Here's the intro. . .

For many of us, the idea of a dairy farm may evoke bucolic images of cows grazing peacefully on acres of green, rolling pasture.

But the reality of U.S. dairy production is making these images increasingly obsolete. In recent years, hundreds of thousands of small pasture-based dairies have disappeared, their production replaced by CAFOs (confined animal feeding operations)—crowded industrial facilities that use methods linked to a variety of health and environmental problems, from antibiotic resistance to "dead zones" in coastal waterways.

Reversing this trend, and promoting healthier, less damaging ways to satisfy our demand for dairy products, should be a policy priority.

Organic Dairy: A Healthier Option

Fortunately, an excellent alternative is available: organic dairy farms. On an organic dairy farm, cows graze on pasture during the growing season, eat organically grown feed, and are not treated with hormones or antibiotics. Well-managed organic dairy farms are less harmful to the environment than conventional dairies, and there is evidence that the milk they produce may be better for our health.

Consumers are catching on to these advantages: demand for organic dairy products has risen quickly in recent years, and national sales of organic milk are now at least $750 million annually. As a result, small dairy farmers facing the imperative to "get big or get out" now have another choice: make the transition to organic. This option has allowed many smaller pasture-based dairies to stay in business.

Measuring the Economic Benefits of Organic Dairy

In Cream of the Crop, we looked at financial data from organic and conventional dairy farms in Vermont and Minnesota, two states with prominent organic dairy sectors. The data were used to model specific metrics for the economic benefits of increased dairy sales:

  • Output, the value of an industry's production within the state;

  • Gross state product, the incremental economic value that a sector provides to the state's economy;

  • Labor income, the proceeds from employment, including wages, benefits, and revenue of self-employed business owners;

  • Increase in employment.

The result: in both Minnesota and Vermont, increases in organic dairy sales were shown to result in larger positive impacts across all of these metrics than similar increases in conventional dairy sales.

Policy Barriers

Better for the environment, better for consumers' health, and better for regional economies: choosing organic dairy sounds like a no-brainer.

But current federal farm policies make organic dairy farming more difficult than it needs to be, and tend to reduce organic dairy production and consumption. Lax regulation of CAFOs allows them to take cost-reducing shortcuts that give them a competitive advantage, while federal research and support programs are not structured to help organic dairy farms.

Making matters worse, revisions currently proposed for federal dairy programs would further subsidize the entrenchment of CAFOs, just at a time when we should be prioritizing support for organic dairy farms so that we can reap more of their economic, environmental and health benefits.


The report includes four policy recommendations that can have a positive impact on the growth of organic dairy farms:

  1. The USDA should reform minimum-pricing orders to make them more effective for the organic dairy sector. Current dairy pricing policies create a revenue pooling system designed to ensure that all farmers receive an equitable return for the milk they produce. However, this system does not take the differences between organic and conventional dairy into account, and as a result, it tends to reduce the production and consumption of organic milk.

  2. Congress and the USDA should customize risk-management programs to reflect organic milk market conditions. Deliberations on the 2012 farm bill have included proposals for new risk management programs intended to protect dairy farmers from volatile market conditions. As in the case of pricing policies, however, these proposals ignore important differences between conventional and organic dairy, making them largely ineffective for organic dairy farmers.

  3. Congress should maintain or increase funding for programs that support organic agriculture. A number of programs already exist that help organic farmers in various ways—reducing the cost of organic certification, funding research on organic production systems, or providing technical and financial assistance for conversation measures. Expanding these programs will further support organic milk production and rural economic development.

  4. Congress should fund, and the USDA should implement, programs that support regional food-system development. Organic dairy farms are important components of regional food systems, so programs that promote the expansion of these systems can also support the growth of the organic dairy sector. Farm-to-school programs, for instance, by encouraging schools to do their sourcing from regional farmers, could spur the expansion of organic dairy production in many areas.

You can read the full report here.