24.5: Financial and Regulatory Considerations for Transitioning to an Organic Dairy

In this episode, Dairy Educator Daniela Roland talks with Chris Anderson, of Sustainable Strategies, to unpack the regulations, financial realities, and key considerations for dairy farmers thinking about transitioning from conventional production to organic. 

Transcript

Welcome And Intro

Speaker 0:09

Welcome to Bovine Banter with the Penn State Extension Dairy Team. I'm Daniela Roland and I'm a dairy educator based in Franklin County, Pennsylvania. For this series on organic dairy farming, joining us today is Chris Anderson with Sustainable Strategies. So thank you, Chris, for joining us and for talking with me today. To get us started, could you please tell me a little bit about yourself and your background?

Speaker 1 0:33

Yeah, absolutely. It's a really a pleasure to be here today. My grandfather, uh Paul Keene, started Waldered Acres way back in 1946 and grew that into the first vertically integrated organic farm in the US. So we were growing up to 600 acres of certified organic cropland because in those days, if you wanted it to be organic, you had to grow it. And we did that and took that from the land all the way through further on-site processing. So we had an on-site mill, an on-site granary, an on-site bakery, and an on-site cannery. And we took all those great products and sold them direct to consumers before there was a health food store on every corner or a Whole Foods market in every community. And we kind of got into policy and sustainability the way everybody does by complete accident. We had to start lobbying the federal government because we were radically roasting peanuts, grinding them up and putting them in a jar and selling it as peanut butter. And the FDA came down on us and said, you can't do that. So we started lobbying and really helping create the knowledge base that whole foods are at least as good as conventional products and processed foods. So that's how we got into it. And now we're a sustainable strategies. We're an advisory firm. We help companies at all levels of the organic value chain. So from helping farmers decide on how to transition and work through their organic systems plan to processors who are who are looking to add organic or become an organic processor to Fortune 100 companies that are that are navigating global economic trade around the world. So it's really been exciting. I've grown up organically and really excited to be able to continue to do it as a full-time job.

Speaker 2:32

Great. Thank you for sharing that. And that's really interesting how it all evolved for you and your family. So to start us out on the dairy side, can you give us a basic overview of what organic dairy production is and what it means to be an organic dairy farmer?

Speaker 1 2:47

Yeah, absolutely.

What Organic Dairy Really Means

Speaker 1 2:48

You know, I think that most people understand organics from the from the produce side, right? And and everybody is pretty familiar that that you know you're not going to get synthetic pesticides and herbicides when you go and you purchase produce at the supermarket. And I think that where that starts to break down a little bit is when you get into livestock production. And I think that people understand that there are no antibiotics or hormones, synthetic antibiotics and hormones given to the animals during their life cycle. But I think that people don't understand that there's also a requirement for pasture, that 30% of the diet of the animal has to be, has to come from pasture, and that all of the feed that that animal gets has to be 100% organic. So you're growing um organic grains and organic pasture and organic hay to feed to these animals throughout their life cycle. Um and that makes it a much different product from conventional because you've got to have more range for them to move around. You have to have more uh access to pasture, and and that feed can be more expensive. So that at a at a really high level, that's the big difference in livestock production from conventional.

The Certification Timeline Explained

Speaker 4:03

So can you walk us through the organic certification process and timeline for dairy farmers that might be thinking of transitioning from conventional to organic?

Speaker 1 4:12

Yeah, so so it's really it's a very interesting um and challenging to make that decision to transition. Um, and I think that we all see right now the the economic value of that, the the difference in the price of organic milk over conventional. You know, in Pennsylvania right now, conventional milk is is between you know $18 and $22 a hundred weight, and grass-fed A2 organic can be up to $60 a hundred weight. So there's a real economic uh incentive to do organic production. But um to navigate that transition, you've really got to understand that from the from the ground up. So your land, it takes 36 months or three full years to transition your land to organic production. And that's that's 36 months from the last application of a prohibited substance, like a synthetic fertilizer or an herbicide or or even treated seeds before crops grown on your land can be certified. Livestock requires a full 12-month transition of continuous um organic management before that milk can be sold as organic. So there are a couple of ways you can go through this process. Number one, you can transition your entire farm at the same time and go through that three-year process. And in that last year of your transition, and you start to transition your herd at the beginning of that, you can actually feed some of those in-transition grains that you're growing on your farm to that herd and make it all happen in that time. Um, another way that you can do it though is if you have if your pasture land has not been treated, you can immediately start that one year transition of your livestock if you have enough access to that. And you would only have to then buy in organic grains for that one year, and you could get a jump on getting to the premium. So you could get to your organic premium for your milk in one year rather than having to wait for three years while you transition the whole farm. That's it's expensive, but it is a really viable option. So the other thing to really understand about that whole herd transition is you can only do that one time. And what I mean by that is that you can't then bring in additional stock and transition them in a in a year. Once you do that whole herd transition, then everything you bring into the farm has to be organic from the last third of gestation. Every new heifer you bring in has to have been raised organically throughout its entire life cycle. So as you're planning to get into your transition period, as you're planning to start this, make sure that you've got your herd to the right size, the ultimate right size you want it to be at. And if you're thinking about a transition to A2, A2 genetic profile, make sure that you've gotten your herd to that genetic profile so that you're not having to go out and buy A2, A2 organic heifers, which are outrageously expensive and in very short supply.

Speaker 7:16

Yeah, thank you for pointing out that. That's really interesting. I wasn't aware of that to consider as far as the adding heifers and that regulation there. So thank you for explaining that.

Certifiers And Split-Farm Options

Speaker 7:26

Are there any other regulatory steps that producers need to think about that you can think of?

Speaker 1 7:31

Yeah, I mean, so you're gonna have to, as you're starting this whole process, you're gonna have to choose, um, you're gonna have to choose a certifier. You're gonna have to work on your entire organic systems plan in advance so that you're making sure that you're keeping all of those, all of the records throughout your three-year transition, so that you can prove that you've done done the work to get the certification and schedule that, schedule that initial on-farm inspection so that you can get to your um get to your your certification and get to that premium. I think that one of the other things to to know is that in in your farm, organic doesn't have to be an all-or-nothing situation. You can keep some of your fields as conventional, um as a hedge. So you don't have to convert your entire farm um to organic production. Um, I would suggest that that most farmers are split operations that are growing conventional grains or non-GMO grains in one part of their farm and organic in another part. They've just developed that the organic weed management and soil management systems um on the organic side to to help them out without risking the entire yield of the farm. Um it is it is a learning curve. And places like Penn State Extension, like certifiers like PCO and folks like the Rodale Institute or PASA really will help you find the tools that you need to learn how to do that. But doing that on an entire farm can be a real challenge and um and also can be a real risk to your yields. I would take, if it was me, I would transition my highest yielding fields first and and get into that production as fast as possible on those.

Speaker 9:16

Okay, that makes sense. Thank you. And you sort of touched a little bit on this, but are there any other like sort of considerations for upfront costs or anything to consider about on the transitional side of income dips that producers should be aware of and plan for?

The Transition Valley And Milk Markets

Speaker 1 9:32

Yeah, absolutely. So so the that transitional valley is a real financial risk and it and it is real. Um, because you're gonna be moving your you're moving your cattle from a really nutrient-dense grain-based diet to a more forage-based diet. So you can expect that you're during that 12 month transition, not only is the grain gonna be more expensive because you're having to buy organic grain to supplement, which is you know two to two times give or take, uh, more expensive than conventional feed grains, your yield is gonna come down 10 to 10 to 15 percent as well as the animals get used to that higher forage uh diet. So, um, and you're not getting the premium on the milk at that point. So the other thing that you really want to think about is who are you gonna be selling your milk to and get that set up in advance? Like who's the co-op that you're gonna that you're gonna use? Um, and does that co-op help you through the transition period? Do they have a market for transitional milk? I know that there are some out there where you know, conventional milk, again, if we say that's at $20, that they'll offer a premium for transitional in that $28 per 100 weight. And then, you know, when you get to full organic, then we're getting into the the $40 a hundred weight for um for conventional, like for grain-fed um organic, and then total grass-fed A2A2, again, upwards of 60. So finding out who your who your market is gonna be, what their requirements are um up front so that you can create a real financial path for that entire transition period is absolutely essential. And again, there are lots of resources out there. Penn State Extension is a great one, the Pennsylvania Dairy Center of Excellence is a is another great one that can help you through that. And then also just talking to other farmers, right? Other organic farmers are a huge resource and um can help you through through that that process. Again, I would I would highly recommend that if you're gonna do that whole herd transition, that you literally get all your cows in a row, um, that you have the herd size that you want it to be when it when it transitions, that you have the genetics right when you get to there. Um that's that's expensive to get everything right. And you don't want to then have to go out and buy, you want to be able to restock your herd from your own production, um, not from uh having to buy it at the market.

Speaker 12:01

Okay, great. Thank you. So you touched on this a little bit too, but I don't know if you can want to expand anymore, but uh, how farmers should evaluate whether transitioning to organic is economically viable for their operation, or do you have any recommendations or any benchmarks that farmers could consider when they're thinking about all this?

Speaker 1 12:20

Yeah, and and again, there are lots of great resources out there available online to do this and really help you help you navigate to that. You know, you're gonna have to choose, choose your certifier and understand what the costs of certification are gonna be. Um, because there's an annual fee, there's an inspection fee, and then there's a volume-based fee. So based on how much milk you're producing, you pay a percentage, uh, a percentage fee there as well. Um, the other things that you've got to consider is how you're gonna navigate that valley, right? That three year term on your farm, if you're not getting the premium, the organic premium for the grains, how are you gonna sell those grains? Um, you're probably gonna have a decrease in your yield of your corn, soy, wheat that you're that you've been growing for years as you learn and rejuvenate the soils. Um, where are you gonna sell that? And are you gonna get a premium? Do you get a non-GMO premium at your mill that you that you're selling to? Um, or can you exchange those non-GMO grains for credit against organic feed from that same mill as a way? You know, you've got to if you're gonna look at the genetics of your of your herd, there's no, you can't look at an animal um or smell an animal and know what its A2 status is. You've got to do genomic testing, and that's that's $50, uh, you know, $50 per per cow. So you've really got to think it all the way through, get a solid financial advisor and build a real business plan to make this transition and make it make it viable for you, your family, um, so that you can survive that transition period of lower yields, lower uh lower yields and higher expenses until you get to the the organic premiums.

Speaker 14:10

Great. Those are excellent recommendations, especially like the having the financial planning and and a health care is really important. So backing up, you you've mentioned this certifier. Um and I think if you're a conventional uh farmer, you might be aware of some different kind of audit type evaluations that most farms have to go through, like the farm program, animal care side of things. But can you walk us through the process of what a certifier does and how a farmer should select a certifier and the steps that should be done with with that and working with a certifier?

How Inspections And Records Work

Speaker 1 14:44

Yeah, absolutely. And and in full transparency, um I I'm a board member um with PCO, Pennsylvania Certified Organic, and they do a great job. Um that's that's uh not a not a uh an unbiased opinion, but um they do do a great job. And and many in Pennsylvania are certified by uh by PCO. They're really, really good at um at organic dairy in particular. Um and I think that it's important to understand there's really there's no there's no quote unquote test for organic, right? You can't just test the milk and say, oh, this is organic. Organic is a systems-based process. It's a so the land has to be certified, the the outputs, the crops are certified. So it's a system of record keeping that really keeps and ensures organic integrity along the entire value chain. So your inspector will, when your certifier comes out, they will review your organic systems plan, which is how you're gonna manage your farm and how you manage your production facility. They're going to um, they're gonna inspect all of the records that you have. So, so in addition to, you know, it everybody, everybody records how much milk you got out of every animal, um, you're gonna have to to make sure that you can prove that back and prove then the rations as well. So how much how much forage were each was each animal getting versus how much grain they were getting. So there's a lot that goes into it, even down to making sure that you use approved um cleaning materials in your in your in your milk barn, that you're using the right materials to clean your to clean your bulk tanks um so that you're not endangering your your certification by using the wrong the wrong material, even down to the pest management inside your barns to make sure that you're not mingling um co-mingling conventional uh and organic grains, uh, that the milk doesn't get mixed with anything or get exposed to anything at all, though. Um so the other really important thing as you're choosing your certifier is to really think about your to think about the financial side of it as well. And that is your your financing side. So having a financial advisor, and if you need to to work with an ag lender early so that you have this line of credit to get you through the 36 months as you're incurring a lot of these costs of buying more expensive grain, having to pay for certification costs and and learning all at the all at the same time.

Speaker 17:21

Great. Those are really important points to consider. Thank you. So then once I this isn't wasn't in the questions, but once a farm is sort of certified, how often would they be working with a certifier? Is it just once a year? Um, or they can they expect several kind of inspections throughout a year once they're certified organic?

Speaker 1 17:40

Yeah, it's a great question. So um so every year you have to resubmit and update your organic systems plan. So in the in the very early parts of the year, you'll you'll go through your all of your records from last year, you will you'll compile, keep all of that compiled, and then you'll update your plan. And and that can be as simple as saying that you've add that you're gonna add a few more cows, you're gonna change who you're buying your grain from, all sorts of things. You've got to you've got to update that from go to woe. You will have at least one inspection um of your farm, an on-farm inspection. And everybody has that uh every single year. You could have a random inspection. So normally that's inspection that that inspection is scheduled so that you know it's coming, you know, and you're ready to to present your your information and your records. And you have to have all those records there with you for the inspector to look at. And they will want to walk through your barn, they'll want to look at your part of it will be probably at your kitchen table where you're looking at records, and then part of it will be on the farm inspecting the animals in the milk barn. But the surprise inspections, the National Organic Program and USDA mandate that certifiers do a number of random inspections, um, and you'll get a call in the morning and say, hey, we're here to to do a random inspection. And that's just that's part of ensuring the organic integrity. Um, it doesn't mean that that something is wrong with your farm, um, but it it just it is a random uh enforcement action.

Speaker 19:13

Sure, that makes sense.

Common Mistakes That Trigger Noncompliance

Speaker 19:15

So, what are some common compliance mistakes or any misunderstandings you see or hear about? And how can producers avoid these setbacks?

Speaker 1 19:24

Yeah, again, a really great question, right? Because you're you're learning, you're you're learning so much in this. Um, so so I think that some of the really common things that happen that people trip up if you are a split operation, right, is when you're running that split operation, you forget that the equipment, like your combine or or your grain carts, that they have to be thoroughly cleaned and purged of that conventional grain before you harvest your organic grain. And failing to log that or or using the wrong um the wrong cleaning agents um can can lead to a major non-compliance. So so you're keeping your your machinery in in great shape and and documenting that you're cleaning it all the time is is really important. We talked about the origin of livestock and and where your where your herds, your animals are coming from. That can be you've got to document where every new heifer comes from. So if you add a heifer from if you you purchase a heifer, you've got to be able to prove that that heifer was managed in organic certification from the last third of gestation. So that the that the mother cow was fed exclusively 100% organic grains and not given antibiotics during her last third of gestation. So you've got to be able to prove that and the and have that certification, have the certificate from the the where you bought that that animal. Um and then the the other one that's really really common is treated seeds. So if you plant your your you go out there and you plant your your alfalfa, but you use a treated alfalfa seed, so whether it's got you know a fungicide or an insecticide on it, um, in your transitioning acreage, you could end up resetting your three-year clock of transition. And that can be just brutal. Um, to have you get to two years and then you you put down the wrong seed and you're just you're back to square one. Um, and I unfortunately see that a lot. So, so making sure that you're documenting your seed, you're you're keeping keeping records of where you bought that seed, when you bought that seed, where you put that seed, what field you put that seed into, at what rate you put it in, at what was the yield when you got it off. There's a lot more to it than there is in um in in conventional agriculture.

Speaker 21:50

Those are excellent points and great for farmers to be aware of because that sounds like it could be really frustrating or catastrophic if they if you have one mishap there with one of those things. Thank you for explaining that.

Speaker 1 22:01

And

Trust, Fraud Reporting, And Resources

Speaker 1 22:02

I think that, yeah, and Danielle, I think it's important to note that that the certifiers are there to be supportive. They're not there to play gotcha games, but they are there to make sure that the organic integrity is there. Um, and that the the premium that the consumer is paying, the premium that the the co-op that you're selling your milk to is legitimate because this is all based on trust. And and unfortunately, there's fraud wherever there's a premium, there's a there's an opportunity for fraud, and it's really incumbent upon everybody in organic agriculture, whether you're a farmer or a consumer or an inspector or a regulator, to root out that fraud. Um, and so you know, uh if if you see, if you it's a it's just like uh anything else. If you see something, say something, right? So if you see that there's fraud going on in, you know, at your local mill or at or somewhere else, report it. Um the USDA has a very clear way to process and and report anonymously fraud, and they are mandated to to investigate it. So ensuring that we're all playing by the same rules ensures this system of trust and ensures the the consumer that they're getting what they pay for and that you're getting the premium as the farmer that that you're entitled to.

Speaker 23:26

Those are excellent points too. Thank you for explaining that. And I appreciate that you mentioned that a certifier can also be there for support too. So, and you've kind of touched on some other support resources. Is there are there any other technical assistance providers or resources that you think farmers should explore um when they're making this transition?

Speaker 1 23:46

Yeah, so so shameless plug here for Penn State Extension. Um, it does phenomenal work. You all do do incredible work, and and you know, the the green circles and and all sorts of things are out there to help um to help folks get through this. You know, regenerative dairy farm assessment programs are great. The Pennsylvania Certified Organic has a lot of great resources, Northeast Organic Farming Association or NOFO New York um has some great things. USDA's NRCS, the Natural Resource Conservation Services, has great stuff. And don't forget that there are there may be grants out there that you can get to help you through this process. In the Farm Bill, there has been funding for um to offset organic certification costs that can pay you back for up to $750 of your uh certification costs on an annual basis. But Pennsylvania in particular has done incredible work on grants for organic production. USDA has value-added producer grants where if you're in an in a pool that is actually taking that raw milk and further processing it into a value-added product, um, that where the producers own that that processing, there are grants that are available to help you help you do that. Um, the Pennsylvania Ag Innovation Grants have been phenomenal resources for organic folks. So just be in be be curious, look around, ask questions, find find your your neighbors, your friends, and and figure out how you can work together to find the right resources. Oh, and that the Pennsylvania Um Dairy Center of Excellence is an incredible resource for dairy farmers as well.

Speaker 25:31

Great, thank you. Yes, at extension we work really closely with with them too. They're very helpful and always kind of evolving things to make sure they have resources for all producers.

Final Advice And Getting Help

Speaker 25:42

So that's a great point. As we wrap things up, do you have any final take-home messages or advice for our audience?

Speaker 1 25:49

Yeah, um first and foremost, thank you, Daniela. This has been a lot of fun and and uh I hope it's really helpful for for you and your listeners. Um, and look forward to to helping anybody who has questions down the road. I think that my the the biggest piece of advice I have is that you've got to treat this entire transition like uh you're evolving your entire business model, right? This is not just checking the boxes on a on a regulatory checklist. You've got to understand the financial, the time, and the record keeping all in advance and make the really smart decision that this is the right choice for you, your family, and your farm. And then I think that you know you have to remember you don't have to flip the whole farm overnight. Using a split operation can allow you to manage that risk while you capitalize on non-GMO premiums along the way until you can get to the organic premium. And then last but not certainly not least, is is that if you're gonna try to stack premiums, right? If you're gonna try to stack the premium of organic and then the the premium of grass-fed organic, and then the premium of grass-fed organic A2, that you've got to match your genetics up to where you're gonna sell your product, right? So if you you've got to understand the the end user, who you're gonna sell this to, that's gonna be a long-term relationship in in all likelihood. They will probably help you through the transition process and help you do it in an economical way, but make sure that that you're doing it with uh with a contract in place, that you've got an idea of where you're gonna sell it, because this is gonna be, this is not gonna be easy. It's gonna be a hard learning curve. And you know, really applaud you for taking the the risk to do it. But make sure that you've got that market, that you've got the market lined up, that you've got your finances lined up, that you've got the right certifier um before you transition a single acre, before you transition a single cow, so that you can see the light at the end of the tunnel because it is a long tunnel. That being said, there are lots and lots of resources out there to help you. People like Penn State Extension, people like sustainable strategies, certifiers, nonprofits. I should have mentioned Team PA and Team Ag in inside of Pennsylvania are incredible resources as well. So, you know, ask your friends and neighbors and take advantage of all the great information that's available out there. And if we can be any help, please uh please don't hesitate to to call.

Speaker 28:25

That's all great, great advice and um great information. I really appreciate it. We did definitely cover a lot today. So this was excellent talking with you, and I really appreciate your time. And then thank you to all of our listeners too. So if you have any questions regarding this topic, you can email me at djr6158 @psu.edu. And for our listeners, be sure to listen in next week as we continue our series on organic dairy farming. Thanks for listening.