Farm Transitions: Valuing Sustainable Practices—Organic Costs

Certified organic agricultural production systems are more complex than conventional corn and soybean production. Organic farmers need to have an organic farm plan that documents the fertilizers, manure, or any other substances applied to every field, every year. They need to document seed lots planted, keep logs of every operation done to every field, and document harvested crops with enough detail that every crop can be traced back to the field it came from (1). Organic farmers need to manage long rotations; and planning good rotations is a very complex task that requires time and thought (2).

Because they are growing more types of crops, organic farmers need more types of planting and harvesting equipment. Because they are using machinery instead of herbicides for weed control, they need more types of tillage, cultivation, and other weed-control equipment. Reliance on machinery for weed control requires careful timing of field operations, and sometimes that’s not possible due to weather. As a result, another potential cost is yield reduction due to weeds getting ahead of the crop (3). Organic farms also tend to involve livestock to a greater degree than conventional cash grain farms, which adds to the complexity of managing the whole system.

These background costs of machinery ownership and maintenance, as well as management of complex systems, are difficult to capture in an enterprise budget. Enterprise budgets for crop production generally document only the costs of field operations (4). Analysis of long-term organic and conventional crop production systems in Minnesota shows that the requirement for more types of machinery in organic systems can limit the size of organic farms (3).

The following example is a rough estimate of the amount of cost per acre that applies to organic farms as a result of the factors that tend to restrict the size of organic farms. The total cost of complexity, machinery ownership, and background management on organic farms is not well documented, so as a stand-in for those costs, this example uses Agricultural Census data on the average size of organic farms and of all farms (5,6). A key assumption is that the total time spent on managing the average farm is the same, whether a farm is organic or conventional. With that assumption, the difference in average farm size can be used to estimate the extra costs of being organic.

  • Average size of all farms in MN, WI, and IA; 2008 data: 287 acres
  • Average annual return to management from conventional corn & soybean production: $230/acre (7)
  • Valued at a management cost of $40/hour (*see note, below):
    $230/acre / $40/hour = 5.75 hours/acre of management time for
    conventional corn and soybean production.
  • 5.75 hours/acre x 287 acres average farm size = 1,650.25 hours per farm (round to 1,650 hours)

*Note: The $40/hour figure for management is an arbitrary figure chosen for this calculation, and the hours spent per acre and per farm are estimates that include not only actual management time, but also costs relating to yield loss due to untimely field operations, equipment ownership costs, and other unspecified costs associated with complexity of the organic farming system.

Now, working the calculation in reverse:

  • Average size of organic farms in MN, WI, and IA; 2008 data: 190 acres
  • 1,650 hours/farm / 190 acres average organic farm size = 8.68 hours/acre of management time for an organic farm
  • 8.68 hours/acre x $40/hour = $347.20/acre management charge for organic farms
  • $347.20/acre organic - $230/acre conventional corn and soybean = $117/acre higher background management + complexity + machinery ownership cost for organic farms.

This calculation returns very similar results if nationwide figures are used. Nationwide average size of all farms is 418 acres, and nationwide average size of organic farms is 280 acres. Difference in management cost per acre using national figures = $114/acre higher for organic farms.

Delbridge et al., using financial data from Minnesota organic farms, calculated that machinery ownership costs averaged about $3.30/acre higher for organic farms than for conventional corn and soybean farms (3).

Thus, the cost of background management + complexity on organic farms:
$117/acre - $3.30/acre machinery ownership cost = $113.70/acre

References:

(1) Minnesota Guide to Organic Certification. 2007. Jim Riddle and Lisa Gulbranson. http://conservancy.umn.edu/bitstream/51829/1/MN_Guide_to_Organic_Certification.pdf (accessed 8/27/13).

(2) Crop Rotation on Organic Farms: A Planning Manual. 2009. Editors: Charles L. Mohler and Sue Ellen Johnson. Natural Resource, Agriculture and Engineering Service; published by Sustainable Agriculture Research and Education (SARE).
www.sare.org/Learning-Center/Books/Crop-Rotation-on-Organic-Farms (accessed 8/25/13).

(3) A whole-farm profitability analysis of organic and conventional cropping. 2013. Timothy A. Delbridge, Carmen Fernholz, Robert P. King, William Lazarus. Agricultural Systems.
http://dx.doi.org/10.1016/j.agsy.2013.07.007

(4) Organic Crop Production Enterprise Budgets. July 2011. Craig Chase, Kathleen Delate, Ann Johanns. Iowa State University. www.extension.iastate.edu/agdm/crops/html/a1-18.html (accessed 8/23/13).

(5) Farms, Land Use, and Sales of Organically Produced Commodities on Certified and Exempt Organic Farms: 2008. In 2008 Organic Producers Survey, USDA National Agricultural Statistics Service. www.agcensus.usda.gov/Publications/2007/Online_Highlights/Organics/organics_1_01.pdf (accessed 8/23/13).

(6) Farms, Land in Farms, and Livestock Operations 2008 Summary. February 2009. USDA National Agricultural Statistics Service. http://usda01.library.cornell.edu/usda/nass/FarmLandIn//2000s/2009/FarmLandIn-02-12-2009.pdf (accessed 8/23/13).

(7) What does it take to earn a living on the farm?April, 2013. Gary Hachfeld, University of Minnesota Extension. http://swroc.cfans.umn.edu/prod/groups/cfans/@pub/@cfans/@swroc/documents/asset/cfans_asset_440374.pdf (accessed 8/06/13)