BUYERS PAY UP FOR ORGANIC
Organic crops command significantly higher prices than conventional crops. But costs are higher, too.
In 2008, organic farmers enrolled in the Minnesota Farm Business Management Program received a premium of nearly $11/bu. over conventional soybean prices. The average organic premium in 2007 was $8.21/bu., and in 2006 it was $7.85/bu. “Through 2008, organic prices went up along with conventional prices,” says Dale Nordquist of the University of Minnesota Farm Financial Management Center.
Demand for organic soybeans continues to be strong, and supplies are tight, according to a June 2009 report from the USDA, Emerging Issues in the U.S. Organic Industry. In the third quarter of 2009, the average price for Midwest food-grade organic soybeans was $19.52/bu. November's average price was $20.41.
Although organic growers spend less on chemicals, they spend more on fuel, repairs, labor and crop insurance. Many include a fallow year in their rotation, raising opportunity costs. Identity-preserved handling takes more time, and administrative expenses are higher due to documentation and annual certification requirements.
Before an operation is certified to sell organic, the cropland must be managed organically for 36 months. Making it through the three-year transition period is tough, says Moorhead, MN, organic grower Mark Askegaard. “You have all the risks but none of the higher prices that organics offer.”
USDA puts the operating and capital costs of converting to organic soybean production at 42¢/bu., amortized over 20 years. Cash flow during the conversion period can be a killer, Nordquist says. The federal Environmental Quality Incentives Program (EQIP) offers financial assistance during the transition.
Organic crop yields are usually lower, and not every bushel qualifies for premiums. Buffer strips between organic and conventional fields, for example, have less value.
In Minnesota, organic soybean yields in 2008 averaged 18 bu./acre, compared to 40 bu./acre for conventional beans, according to the University of Minnesota's FinBin, a database of farm financial performance. Gross revenues for organic beans averaged $538/acre, and expenses averaged $355/acre. By comparison, gross revenues on conventional beans averaged $432/acre, and expenses averaged $332/acre. Organic soybeans returned about $80/acre more than conventional beans in 2008.
As a group, Minnesota organic crop farms were quite profitable in 2008, Nordquist says, with a return on assets of more than 13%. But just as with conventional producers, he says, “There is tremendous variability in production and financial performance.”