Organic Agriculture …… Comparison to the Conventional Agriculture: Still Viable? Craig Chase,...

Organic Agriculture ……

Comparison to the Conventional Agriculture:

Still Viable?

Craig Chase, Field SpecialistFarm & Ag Business Management

Markets are changing

• Strongly-held belief: Organic production no longer has an economic advantage to conventional agriculture.

• Or restated… with higher corn prices you would be further ahead as a conventional C-Sb farmer.

• Response: Let’s develop some budgets for 2006-2010 and see what happens…

Yield Assumptions by Crop/Rotation

180

150

50

40

020406080

100120140160180200

C-Sb C-Sb-O/A-ARotation

bu

/acr

e

Corn

Soybean

Note: yield increased to 200 for 2010 conventional corn

Oat yields are 80 bushels

Alfalfa yields are 4.5 tons

1.0

1.8

0.0

0.5

1.0

1.5

2.0

C-Sb C-Sb-O/A-ARotation

hr/

acre

Labor Fieldwork Assumptions

Production Costs (exc labor and land)

0

100

200

300

400

500

600

2006 2007 2008 2009 2010

Years

Do

llars

pe

r a

cre C-C

C-Sb

C-Avg

O-C

O-Sb

O-Avg

Things to Note

• Conventional corn production expenses increased 75% in three years – organic corn expenses 43% in five years.

• Conventional rotational average production expenses increased 73% in three years – organic rotational average production expenses increased 36% in five years.

Bottom Line

• Production costs for conventional corn and soybeans is likely to continue to increase in volatility as well as show an overall dramatic increase (39% increase from 08-09).

• While organic production costs are increasing, they appear to be consistent and somewhat reasonable (5-10% increase per year).

Returns to Management

-200

0

200

400

600

800

1000

2006 2007 2008 2009 2010

Years

Do

llars

pe

r a

cre C-C

C-Sb

C-Avg

O-C

O-Sb

O-Avg

Inclusion of oats and alfalfa

• Strongly-held belief: inclusion of oats and alfalfa make the organic rotation not competitive with the conventional C-Sb rotation.

• Let’s take a look…

Return to Management

-150

-100

-50

0

50

100

150

200

250

300

350

2006 2007 2008 2009 2010

Years

Do

llars

pe

r a

cre

C-Avg

O-O

O-A

O-A Avg

Things to note…

• 2009 was a huge year for revenues for conventional corn and soybeans.

• Production expenses increased at a higher rate than revenue from 2008-09 for conventional corn and soybeans.

• The organic system had its highest economic return in 2008 led by corn, but hasn’t seen any negative or low numbers from 2006 on.

Focus on the right number…

• Just because you bring in more money doesn’t mean you are keeping any more of it yourself…

• So focus on economic returns, not prices or revenue... Family living and other personal bills are paid out of net returns not gross revenue.

Another look at returns to management

-200

-100

0

100

200

300

400

500

600

2006 2007 2008 2009 2010

Years

Do

llars

pe

r a

cre

C-Avg

O-Avg

06-10 Avg

C-$107

O-$328

Question…

• Can you withstand the wild swings in a conventional rotation? Rotation average return ranged from -$84 to $232.

• Organic rotation average ranged from $194 to $506.

• The average returns for the organic rotation is less variable (risky) than the conventional rotation.

So what does that extra $220 mean…

• 5% decrease in all yields would reduce net returns for each crop of:– $52 corn– $48 soybeans– $13 oats– $32 alfalfa– Total $145

What does that $220 mean…

• 10% decrease in all yields would reduce net returns for each crop of:– $103 corn– $96 soybeans– $26 oats– $63 alfalfa– Total $285

What does that $220 mean…

• Or a big yield hit in one of the crops…– 35 bu. corn (21%)– 11.5 bu. soybeans (23%) – 67 bu. oats (84%) – 1.6 ton alfalfa (36%)

Question becomes…

• Can you manage your production risks to reduce the likelihood of those kind of yield decreases?

• If so, you are likely to keep the economic advantage from producing organic crops.

Bottom Line

• Conventional prices and revenues are historically high.

• Fertilizer, pesticides, seed, etc. costs have increased dramatically reducing net economic returns to conventional production.

• Organic production is the classic risk/reward situation. You assume additional individual crop production and marketing risk to receive higher average returns.

Questions…..

Any questions or comments?

Thank You for This Opportunity!

Craig A. ChaseFarm Management Field Specialist

312 Westbrook LaneAmes, IA 50014(319) 238-2997

cchase@iastate.edu

http://www.extension.iastate.edu/agdm/fieldstaff/cchase.html