E:/Spreadsheets/DyOrganicSSGB05 Last Modified 2/7/06

Prepared by Geoff Benson, ARE, NCSU. Tel: (919) 515-5184. Email: geoff_benson@ncsu.edu NOTES NOTES, continued
Example data are 5-year averages for 1999-2003 from the NCSU Dairy Farm Financial A second measure of net income (B) is presented that omits these accrual adjustments
A worksheet for estimating the financial impact of converting from conventional to organic milk production. Performance Project. but this may be an understatement because no adjustments to expenses were made.

This spreadsheet is set up for a four-year transition period -- three for crops and a fourth for the dairy herd.
For shorter transition periods, set the size of the dairy herd in row 32 to zero for the missing transition
year(s). For example, enter zero in cell O32 if there is no third transition year.
If the projections are for a new dairy farm, you must enter zero in cell C32.
For an existing farm, the approach is to establish the expected performance with no changes, as the basis for
measuring the impact on profitability from converting to organic production. If the transition period results
in a reduction in net income, as is likely, the accumultated reduction is amortized over a planning horizon (cell B92)
and at an interest rate (cell B93) selected by the user . An annual charge is made in each year of organic
production to recover these losses. Similarly, if new investment is required to implement the transition to organic,
an annual depreciation charge should be calculated and entered in cell W88. Organic production is profitable
only if the net income after these charges exceeds the historic performance of the existing farm.
For a new farm, the spreadsheet estimates the revenue and expenses each year for the transition and for
the typical year once certified.
The values used for revenue and expenses should be economic measures of costs and revenue. Note that
revenue includes an accrual adjustment to allow for increases in the value of farm inventories, e.g., livestock.
Two measures of net revenue are provided, one with and one without the accrual adjustment figure. However,
the latter may not be an accurate estimate of cash flow. Also, note the data in this spreadsheet do not
evaluate the overall financial viability of a farm. Revenue and costs from non-dairy enterprises are omitted.
Depreciation charges and interest payments for the existing farm are omitted also. Separate cash flow
projections may be needed to ensure debt service and family living needs can be met in a timely fashion.
Example data are shown but this should in not be taken as representative of the profitability of organic production.
During the crop transition years, milk per cow is reduced 500 pounds based on the Information for the full organic year should be representative of the planning horizon. In the
assumption that forage crop composition will change and affect production. Chemical example, in the organic year, both net revenue measures are larger than the base year.
costs are removed, seed costs are increased by 50%, fertilizer costs are unchanged However, these figures do not consider any reductions in net income during the transition
while recognizing that sources change. Machinery repair costs are increased 10% and period.
fuel costs are increased 20% to reflect increased cultivation activity.
Differences between the individual transition years and the base year are presented for
During the dairy transition year, milk per cow is reduced 1500 pounds to reflect the each year for both net income measures. All the differences are negative. Cumulative
change to a partial pasture based diet and removal of BST. The milk price is unchanged.totals are presented. The cumulative balances shown at the end of the fourth year must
Labor cost is increased 10% to reflect the change in work routine in feeding and be recouped if the switch to organic production is to be profitable. The cumulative
managing the herd. Purchased feed grain cost is doubled but no forages are purchasedreduction in net revenue over listed expenses is amortized over a 10 year planning horizon
Other costs are unchanged but the items purchased will be different in some cases. at a 6% annual interest rate. The annual amortization charge is deducted from the net
revenue over listed expenses for the "typical" organic year to estimate the true increase
The full organic year has the same cost structure as the transition year but the milk in net income compared to the base year. Note that any additional depreciation and
price is raised by $7.00 per cwt. interest charges related to new investment for the transition should also be estimated
and deducted, e.g., for new fencing, lanes & water in pastures.
Two measures of net income are presented.
The first measure (A) shows the difference between gross revenue and listed expenses.This is an example only and is intended to demonstrate the process.
Note that interest payments and depreciation charges are omitted because these vary It is not intended to imply that a transition to organic milk will or
from farm to farm for historic reasons. Note also that revenue includes accrual will not be profitable and feasible for a specific farm situation.
adjustments that reflect the growth in farm inventories over time. The cost of
producing this increase in value may or may not be reflected in the listed expenses.

CAUTION: The user must accept responsibility for information generated and actions taken using this spreadsheet.
Enter your farm data in the highlighted cells. You may wish to scroll to row 32 & "freeze panes" at the blue cell.
Expected 100 Percent Crop 100 Percent Crop 100 Percent Crop 100 Percent Dairy 100 Percent Typical Full 100 Percent
ITEM Average Head Dairy of Gross Transition Head Dairy of Gross Transition Head Dairy of Gross Transition Head Dairy of Gross Transition Head Dairy of Gross Organic Head Dairy of Gross
Per Cow Non-Organic Revenue Year 1 Revenue Year 2 Revenue Year 3 Revenue Year Revenue Year Revenue

Pounds milk sold 21,760 2,176,000 21,260 2,126,000 21,260 2,126,000 21,260 2,126,000 19,760 1,976,000 19,760 1,976,000
Milk price $15.29 $0.1529 $15.29 $0.1529 $15.29 $0.1529 $15.29 $0.1529 $15.29 $0.1529 $22.29 $0.2229

CASH RECEIPTS
Milk sales $3,327 $332,710 85.64% $3,251 $325,065 85.35% $3,251 $325,065 85.35% $3,251 $325,065 85.35% $3,021 $302,130 84.41% $4,405 $440,450 88.76%
Livestock sales $141 $14,100 3.63% $141 $14,100 3.70% $141 $14,100 3.70% $141 $14,100 3.70% $141 $14,100 3.94% $141 $14,100 2.84%
Other $306 $30,600 7.88% $306 $30,600 8.03% $306 $30,600 8.03% $306 $30,600 8.03% $306 $30,600 8.55% $306 $30,600 6.17%
Total operating income $3,774 $377,410 97.14% $3,698 $369,765 97.09% $3,698 $369,765 97.09% $3,698 $369,765 97.09% $3,468 $346,830 96.90% $4,852 $485,150 97.76%
Accrual adjustments $111 $11,100 2.86% $111 $11,100 2.91% $111 $11,100 2.91% $111 $11,100 2.91% $111 $11,100 3.10% $111 $11,100 2.24%
Gross Revenue $3,885 $388,510 100.00% $3,809 $380,865 100.00% $3,809 $380,865 100.00% $3,809 $380,865 100.00% $3,579 $357,930 100.00% $4,963 $496,250 100.00%

CASH EXPENSES
Hired labor $490 $49,000 12.61% $490 $49,000 12.87% $490 $49,000 12.87% $490 $49,000 12.87% $539 $53,900 15.06% $539 $53,900 10.86%
Feed -- Bought grain & commodities $1,060 $106,000 27.28% $1,060 $106,000 27.83% $1,060 $106,000 27.83% $1,060 $106,000 27.83% $2,120 $212,000 59.23% $2,120 $212,000 42.72%
Feed -- Bought forage $123 $12,300 3.17% $123 $12,300 3.23% $123 $12,300 3.23% $123 $12,300 3.23% $0 $0 0.00% $0 $0 0.00%
Feed -- nondairy $1 $100 0.03% $1 $100 0.03% $1 $100 0.03% $1 $100 0.03% $0 $0 0.00% $0 $0 0.00%
Feed subtotal $1,184 $118,400 30.48% $1,184 $118,400 31.09% $1,184 $118,400 31.09% $1,184 $118,400 31.09% $2,120 $212,000 59.23% $2,120 $212,000 42.72%
Fertilizer & Lime $92 $9,200 2.37% $92 $9,200 2.42% $92 $9,200 2.42% $92 $9,200 2.42% $92 $9,200 2.57% $92 $9,200 1.85%
Chemicals $53 $5,300 1.36% $0 $0 0.00% $0 $0 0.00% $0 $0 0.00% $0 $0 0.00% $0 $0 0.00%
Seed $43 $4,300 1.11% $65 $6,500 1.71% $65 $6,500 1.71% $65 $6,500 1.71% $65 $6,500 1.82% $65 $6,500 1.31%
Crop subtotal $188 $18,800 4.84% $157 $15,700 4.12% $157 $15,700 4.12% $157 $15,700 4.12% $157 $15,700 4.39% $157 $15,700 3.16%
Milk hauling & marketing $164 $16,400 4.22% $164 $16,400 4.31% $164 $16,400 4.31% $164 $16,400 4.31% $164 $16,400 4.58% $164 $16,400 3.31%
Supplies $83 $8,300 2.14% $83 $8,300 2.18% $83 $8,300 2.18% $83 $8,300 2.18% $83 $8,300 2.32% $83 $8,300 1.67%
Vet & med $114 $11,400 2.93% $114 $11,400 2.99% $114 $11,400 2.99% $114 $11,400 2.99% $114 $11,400 3.19% $114 $11,400 2.30%
BST $54 $5,400 1.39% $54 $5,400 1.42% $54 $5,400 1.42% $54 $5,400 1.42% $0 $0 0.00% $0 $0 0.00%
Breeding $37 $3,700 0.95% $37 $3,700 0.97% $37 $3,700 0.97% $37 $3,700 0.97% $37 $3,700 1.03% $37 $3,700 0.75%
Bedding $28 $2,800 0.72% $28 $2,800 0.74% $28 $2,800 0.74% $28 $2,800 0.74% $28 $2,800 0.78% $28 $2,800 0.56%
Custom boarding/raising $33 $3,300 0.85% $33 $3,300 0.87% $33 $3,300 0.87% $33 $3,300 0.87% $0 $0 0.00% $0 $0 0.00%
Purchased replacements $49 $4,900 1.26% $49 $4,900 1.29% $49 $4,900 1.29% $49 $4,900 1.29% $0 $0 0.00% $0 $0 0.00%
Leased cows $0 $0 0.00% $0 $0 0.00% $0 $0 0.00% $0 $0 0.00% $0 $0 0.00% $0 $0 0.00%
Other livestock expense $63 $6,300 1.62% $63 $6,300 1.65% $63 $6,300 1.65% $63 $6,300 1.65% $63 $6,300 1.76% $63 $6,300 1.27%
Livestock expense subtotal $625 $62,500 16.09% $625 $62,500 16.41% $625 $62,500 16.41% $625 $62,500 16.41% $489 $48,900 13.66% $489 $48,900 9.85%
Utilities $84 $8,400 2.16% $84 $8,400 2.21% $84 $8,400 2.21% $84 $8,400 2.21% $84 $8,400 2.35% $84 $8,400 1.69%
Machinery repairs & maintainance $117 $11,700 3.01% $129 $12,900 3.39% $129 $12,900 3.39% $129 $12,900 3.39% $129 $12,900 3.60% $129 $12,900 2.60%
Machine hire, rent, lease $47 $4,700 1.21% $47 $4,700 1.23% $47 $4,700 1.23% $47 $4,700 1.23% $47 $4,700 1.31% $47 $4,700 0.95%
Fuel $56 $5,600 1.44% $67 $6,700 1.76% $67 $6,700 1.76% $67 $6,700 1.76% $67 $6,700 1.87% $67 $6,700 1.35%
Auto $1 $100 0.03% $1 $100 0.03% $1 $100 0.03% $1 $100 0.03% $1 $100 0.03% $1 $100 0.02%
Power subtotal $305 $30,500 7.85% $328 $32,800 8.61% $328 $32,800 8.61% $328 $32,800 8.61% $328 $32,800 9.16% $328 $32,800 6.61%
Land rent & lease $54 $5,400 1.39% $54 $5,400 1.42% $54 $5,400 1.42% $54 $5,400 1.42% $54 $5,400 1.51% $54 $5,400 1.09%
Buildings repairs & maintainance $68 $6,800 1.75% $68 $6,800 1.79% $68 $6,800 1.79% $68 $6,800 1.79% $68 $6,800 1.90% $68 $6,800 1.37%
Insurance $57 $5,700 1.47% $57 $5,700 1.50% $57 $5,700 1.50% $57 $5,700 1.50% $57 $5,700 1.59% $57 $5,700 1.15%
Property taxes $31 $3,100 0.80% $31 $3,100 0.81% $31 $3,100 0.81% $31 $3,100 0.81% $31 $3,100 0.87% $31 $3,100 0.63%
Miscellaneous $79 $7,900 2.03% $79 $7,900 2.07% $79 $7,900 2.07% $79 $7,900 2.07% $79 $7,900 2.21% $79 $7,900 1.59%
General feam expense subtotal $289 $28,900 7.44% $289 $28,900 7.59% $289 $28,900 7.59% $289 $28,900 7.59% $289 $28,900 8.07% $289 $28,900 5.82%
Total production expenses $3,081 $308,100 79.30% $3,073 $307,300 80.69% $3,073 $307,300 80.69% $3,073 $307,300 80.69% $3,922 $392,200 109.57% $3,922 $392,200 79.03%
A. Net revenue over listed expenses $804 $80,410 $736 $73,565 $736 $73,565 $736 $73,565 ($343) ($34,270) $1,041 $104,050
Difference vs. Base Year ($68) ($6,845) ($68) ($6,845) ($68) ($6,845) ($1,147) ($114,680) $236 $23,640
Cumulative difference ($6,845) ($13,690) ($20,535) ($135,215)
B. Net operating revenue -- $693 $69,310 $625 $62,465 $625 $62,465 $625 $62,465 ($454) ($45,370) $930 $92,950
for unlisted expenses, family compensation, asset replacement, debt service (omits accrual adjustments)
Difference vs. Base Year ($68) ($6,845) ($68) ($6,845) ($68) ($6,845) (1,147) ($114,680) $125 $12,540
Cumulative difference ($6,845) ($68) ($13,690) ($68) ($20,535) (1,147) ($135,215)
Deduct depreciation & interest charges on new investment required to implement the transition in cell W90==> Deprec. & interest charge on new investment $0
Amortized transition costs (reduced net income) based on annual payments and the following parameters: Amortized transition net income reductions $18,371
Planning horizon, years 10
CAUTION: The user must accept responsibility for information generated and actions taken using this spreadsheet.
Enter your farm data in the highlighted cells. You may wish to scroll to row 32 & "freeze panes" at the blue cell.
Expected 100 Percent Crop 100 Percent Crop 100 Percent Crop 100 Percent Dairy 100 Percent Typical Full 100 Percent
ITEM Average Head Dairy of Gross Transition Head Dairy of Gross Transition Head Dairy of Gross Transition Head Dairy of Gross Transition Head Dairy of Gross Organic Head Dairy of Gross
Per Cow Non-Organic Revenue Year 1 Revenue Year 2 Revenue Year 3 Revenue Year Revenue Year Revenue
Interest rate, annual 6.0%
Projected Net Revenue over listed expenses from organic production over the planning horizon==> Projected Net Revenue over listed expenses $5,269