Economics of Organic Production, Page 2
|Although raising organic apples can cost 10 to 25 percent more than growing conventionally, according to a University of California study, price premiums still make them a profitable choice for farmers. |
– Photo by Jerry DeWitt
On the surface, organic farming may seem to be riskier: Organic farmers are limited to a much smaller range of pest control materials, are learning a new management system and may be subject to pest and weed outbreaks during what is known as the "ecological" transition period.
Fred Kirschenmann, director of the Leopold Center in Iowa and a long-time North Dakota organic farmer, believes that the nature of organic farming and its reliance on crop rotation provides protection against vulnerability. "Diversity spreads out risks and vulnerabilities," he explains in the introduction to Cereal-Legume Cropping Systems. "If you have one or two crops, you are vulnerable to market and natural adversities of that narrow band of crops. That makes farming a high-risk venture. As diversity on the farm increases, growing risks get spread out and market opportunities increase."
Substantial expansion in one product could cause prices to drop, so premium prices are not always a guarantee. Most research, however, seems to indicate that organic row crop and small grain rotations can be competitive, even without the price premium.
Diversifying the production system is paramount for economic security. "If you're going with contracts, you need to plan very carefully because organic premiums fluctuate a lot," said Steve Temple, the UC-Davis researcher. "It's OK if you have a high-value crop in the rotation but it's more important that producers count on more modest premiums on all crops than simply depending on just one high-value premium. The market for high-value crops can get saturated and the prices can decrease."
A six-year study in northeastern South Dakota comparing organic and conventional systems found much less variability in net income over all costs, except for management, in the organic system. The net returns varied by $16/acre in the organic system versus $31/acre in the conventional system and there were no negative net returns in the organic system.
Economic effects also vary across different enterprises and regions. For example, an organic apple enterprise might be appropriate for western areas with low disease and pest pressure, but is much tougher in eastern areas, where production costs are too high to price apples competitively. There is less yield risk in organic grains in dryland areas. Finally, enterprises based on direct marketing are less likely to succeed if the grower is far from a major population center.
During transition, risks associated with extra costs such as re-tooling, purchasing additional equipment, extra storage requirements and additional labor can be substantial.
Wende Elliott and Joe Rude helped form a marketing co-op to share some of those risks.
"If we had tried to be a one-man show instead of joining a cooperative group," said Elliott, "it would have hurt us because we all would have been competing against each other based on price."
Co-op members share the labor associated with marketing, such as promotion and sales. And by working together on quality control, codification of nutrition and genetics, the co-op members each gained access to bigger markets. Moreover, the growers had more time for their individual operations. As start-up farmers, Elliott and Rude shared, rather than purchased equipment, whenever possible.
"Having a strategy for managing production, marketing and financial risks is important during the three-year period it takes to transition to organic," said Sharon Hestvik, small farm coordinator for USDA's Risk Management Agency. "One risk management strategy for producers transitioning into organic is to keep good records."
RMA provides risk management tools and crop insurance coverage on over 100 crops for both organic producers and those transitioning into organic farming practices. RMA requires several documents, including:
Records from the certifying agency showing the locations of fields that are transitional, certified organic, buffer zone acreage and conventional (not maintained under an organic management plan);
A copy of written documentation from a certifying agent showing an organic plan for the acreage;
Records of the types of crops grown, yields and whether the crop is irrigated or non-irrigated; and
The dates that the crops were planted.
As part of the organic production learning curve, costs may go up. Farmer experience and research clearly shows the transition loss can be reduced, however, by taking the time to learn what you're doing and convert a little at a time.
At Taconic End Farm in Vermont, where profits climbed 40 percent during the transition, Annie Claghorn's and Caitlin Fox's only change in management was the purchase of organic grain, since their cows were already pastured.
John Vollmer, the N.C. strawberry farmer, attributes part of his successful transition to the fact that prior to converting he had been using organic soil management techniques for two years. ( see "Making the Transition to Organic Production").
Some states, such as Minnesota and Iowa, also provide technical and financial assistance for growers in transition. (See USDA Economic Assistance)
|Mark Davis, an agronomist at USDA-ARS ’s Sustainable Agricultural Systems Lab in Beltsville, Md., examines a no-till drill as part of a long-term experiment that compares crop production, weed pressure and soil dynamics in organic and conventional cropping systems. |
– Photo by Mandy Rodrigues
Researchers are responding to farmer needs for more information about transitioning to organic systems. Their old hypotheses predicted a yield decline for the first three years, due to the time it takes to build soil fertility and biology, establish natural controls for pests and weeds, and the inevitable "learning curve" associated with managing a new system. For many farmers, that "triple whammy" of yield decreases, initial cost increases and no economic premium available during transition has been a big barrier to conversion. Recent findings in North Carolina and Iowa, among other places, however, indicate that producers might not always see declining yields during transition.
Recently, researchers have designed experiments that compare organic systems not just to conventional ones, but to each other. "We want to determine if there are strategies farmers can use to ease into these systems without taking a financial hit," said Nancy Creamer, director of The Center for Environmental Farming Systems at North Carolina State University and one of the lead researchers on a transition study that compares four methods of conversion to organic.
Early findings from this new body of research are encouraging. Creamer's study compares going organic "cold turkey" (withdrawing all chemical inputs) to a series of treatments, each of which have a gradual withdrawal of different classes of inputs and uses a soybean-sweet potato-wheat/cabbage rotation. Results from the first two years showed no differences in yields when soybeans were grown in the first year of the rotation, or in marketable yields for sweet potatoes in the second year. Early analysis shows that some of the transitional treatments are not as profitable as the conventional one, due primarily to the high input costs associated with soil building. (See "What's in a Name?" for ideas on how to increase returns on "transitional" crops.)
While the study will continue until 2007, Creamer is excited that the results thus far show comparable yields in the organic and conventional systems. She partially attributes the production success of the transition to the fact that researchers are more knowledgeable about organic systems. "We've learned a lot from growers," she said, referring to the production techniques and management decisions. "For example, in our study we knew we should start with soybeans and we also understood some principles of organic weed management that helped us have relatively weed-free fields."
Other results from SARE-funded research have shown:
A transition experiment on Iowa farmland previously enrolled in the Conservation Reserve Program (CRP) found that soybeans grown organically had yields equivalent to county averages beginning the first year of transition. CRP land can be certified without the three-year waiting period if the producer can document that the land has received no prohibited materials. By the third year, the returns for the organic soybeans were 180 percent above conventional soybeans.
Researcher Elizabeth Dyck in Lamberton Minn., found that by the third year of transition to organic production, soybean and corn yields could match conventional yields, if those crops had been preceded by one to two years of a small grain/forage legume as opposed to a row crop.