PROFIT IN ORGANIC FARMING

rganic farming offers higher profits with challenges

Organic grain farming can increase farmers incomes significantly, but there are also challenges,
particularly in transitioning to organic. This was a key message at a Beginning Organic Farming
Workshop held at Purdue University this past February.
Gary Reding, president of Langeland Farms, Inc., discussed the real life economics of growing
organic and conventional crops, including popcorn, dry beans, soybeans, wheat, and corn on 900
acres in Greensburg, Indiana.
Reding compared revenues from conventional and organic farming. Referring to 2005 data
compiled by Purdue University, Reding pointed out that conventional farms lose money each
year. Total crop revenues plus government subsidy payments fall far short of covering overhead
costs for machinery, drying/handling, labor, and land rent. According to Purdues data, a 1200acre conventional farm with high productivity soil suffers a loss of more than $50,000 (see Figure
1).
By contrast, Reding said that a 300-acre organic farm growing a crop rotation of corn, soybeans,
wheat, hay, and popcorn, produces a net revenue of $3675 (see Figure 2). Earnings are
$54,723 better than the best conventional 1200-acre farm, said Reding.
Extending these figures to a 1200-acre organic farm would produce net earnings of $132,900,
said Reding.
Organic crops command much higher premiums than conventional with per bushel prices of
$6.25 for corn, $20 for soybeans, $6 for wheat, and $60 per ton for hay.
David Conner, research specialist at Michigan State University, said organic corn and soybean
production also use one-third less energy than conventional production.
Crop diversity key to managing risks
Corinne Alexander, Purdue grain marketing expert, also said that organic farms earn significantly
more revenue than conventional, in some cases as much as double (see Figure 3).
Alexander said that variable costs for both conventional and organic farms are similar.
Key to the success of organic farms is crop diversity. Diversity is a key strategy to managing
risks, said Alexander.
Higher organic profits are not limited to grains. Organic dairy farmers may receive as much as $5
more than conventional farmers selling 100 pounds of milk, said Joe Balagtas, an assistant
professor of agricultural economics at Purdue. Balagtas cautioned there is no guarantee price
premiums will last. We dont really know whats going to happen in these markets, he said. For
now, David Robb, manager of business development, Indiana-based Traders Point Creamery, said
markets for organic dairy are exploding. There is a shortage of supply, and we cant meet the
demand, he said. Organic vegetable producers are also succeeding. Conner described research
that looked at 12 organic vegetable farms in the Northeast United States. Are people making a
living? Yes, said Conner.
To encourage more organic production, Conner said more organic farming research is needed at
land-grant universities.

Transitioning challenges
While the organic market offers many opportunities, Reding said transitioning to organic is a
mental challenge. Farmers have to ask themselves can I make a living growing organically?
Reding described three transition scenarios, ranging from a gradual transition to one he
described as suicidal. In general, Reding said farmers would lose money in the three-year
transition period to organic, but then earn it back in following years.
Reding warned against transitioning an entire farm at once. To take an entire farm and
transition to organic is too much too fast, he said.
Alexander said, Transitioning is tough, and theres no two ways about it. A big reason is limited
markets for transitional crops.
Alexander said organic farmers may need to find additional revenue sources to fill the three-year
gap until the farm becomes certified organic. Will your banker support you through the
transition? she asked.
To make the transition to organic easier, Alexander recommends converting small sections of a
farm to organic. You dont need to convert all at once, especially with grains, she said. Convert
a little at a time and learn how to farm organically.
Alexander also recommends using government programs, such as organic certification cost share
and value-added agricultural producer grants, to help the transition.
Learning curve
Transitioning involves a learning curve to adjust to new production methods. New equipment
may be needed. If you got rid of your moldboard plough, you may have to buy another one,
said Alexander. The new organic farmer must learn how to respond to pest and disease
challenges without using chemicals. More labor may be required.
Another challenge is low yields, which new organic farmers can expect for the first three years.
But yields will eventually improve, according to research at Iowa State University. After three to
five years, yields may be 90-95% of conventional grains, said Alexander.
While food-grade corn and soybeans command higher premiums, organic farmers must meet
quality demands to earn those premiums. Though quality is not as important with feed-grade
corn and soybeans.
Organic certification also presents challenges. You need to have good records, said Alexander.
Then there are marketing risks. Alexander said organic farmers may need to negotiate more with
buyers over prices, and may have to wait longer to receive payments. Additional storage may
also be needed to store grains while the farmer finds a buyer.
Finally, organic farmers face increasing challenges from genetically modified crops, which now
make up the majority of corn and soybeans grown in the United States. Pollen drift is a big
concern with corn, while seed contamination and commingling in grain handling is a problem with
soybeans.
Figure 1.
1200-acre conventional farm growing corn, soybeans, and wheat
Margin (income) $200,200
Government payment 45,852
Total revenue 246,052

Total overhead costs 297,100

Net loss -51,048
(Source: January 2005 Purdue Crop Cost & Return Guide)
Figure 2.
300-acre organic farm growing corn, soybeans, wheat, and hay
Margin (income) $83,175
Government payment 8,100
Total revenue 91,275
Total overhead costs 87, 600
Net earnings 3,675
Figure 3.
Organic Conventional
Corn prices $4.00-$7.25 $1.71-$3.29
Corn yields per bushel 135 155
Revenues $540-$978 $265-$510
Soybean prices $10-$14.75 $5.15-$5.60
Yields 35 49
Revenues $350-$516 $252-$275
(Source: www.newfarm.org and IL)
Copyright 2006. The Organic & Non-GMO Report.
June 2006.
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