96 96 United States, $11,000,000,000 France , $1,200,000,000 Italy, $1,200,000,000 UK, $1,600,000,000 Germany, $2,800,000,000 Rest of World, $725,000,000 Japan , $350,000,000 Canada , $850,000,000 Other Europe, $3,200,000,000 Science-Based Organic Farming 2008: Toward Local and Secure Food Systems Economics of Organic Agriculture Organic farming is one of the fastest growing segments of U.S. agriculture. Growth in retail sales has equaled 20% or more annually since 1990, pushing global sales to an estimated $23 billion in 2002.
Organic consumption in the United States accounts for roughly $11 billion of total global sales (See Figure 1). Figure 1 . Global Sales of Organic Foods, Circa 2002 Fresh produce accounts for 42% of total organic food sales in the United States.
Nondairy beverages, breads and grains, packaged foods, and dairy are the other top-selling food categories (Dimitri and Green, 2002). Three main venues are used for the sale of organic food in the U.S. 3 natural food stores, conventional grocery stores, and direct-to-consumer markets.
A small amount 97 97 of organic food produced in the U.S. is exported. The Marketing section of this handbook provides information about markets in Nebraska, focusing on direct sales and local organic grain buyers.
Transitioning to Organic Production Producers transitioning to organic systems ... more. less.
will likely experience a decline in yields during the first several years of conversion. However, once that conversion period ends, research shows that yields will rebound to levels approaching conventional levels. More importantly, premiums for organically produced crops and reduced production costs impact net return and profitability.<br><br> While more research is needed on the economics of transition, the long- term economic viability of established organic systems is quite positive. A 1999 Wallace Institute review of six midwestern land-grant university studies found: Organic grain and soybean production systems are "competitive with conventional production systems." In fact, with current market premiums, producers of organic grain and soybeans earn higher profits than conventional growers. Without a price premium for organic crops, half of organic systems were still more profitable than the conventional systems.<br><br> Those systems less profitable than conventional quickly surpassed the conventional systems when organic premiums were figured in. http://www.sare.org/publications/organic/organic07.htm Organic Versus Conventional A recent publication by the Economic Research Service (ERS, 2002) of the USDA entitled Recent Growth Patterns in the U.S. Organic Foods Market , sites several studies that compare the economics of organic and conventional farming systems.<br><br> Several recent studies in the U.S. report that organic price premiums are key in giving organic farming systems comparable or higher whole- farm profits than conventional systems. Other studies indicate that organic systems are more profitable even without organic premiums because of lower input costs.<br><br> A study of organic soybeans in the Midwest revealed that they were more profitable than conventionally-grown soybeans because of higher yields in dry areas and periods of drought and lower associated input costs. Of particular interest is that NO studies have shown organic systems to be less profitable than conventional systems . 98 98 As shown in Table 1 below, scientific studies across the U.S.<br><br> have demonstrated the economic viability of organic cropping systems. Full citations for each study are given at the end of this section. Table1 .<br><br> Yield and economic comparison studies of conventional and organic farming systems. Source: Delate et al., 2003 U.S. State Year Crops Yields Economics South Dakota (Dobbs and Smolik, 1996) 1985- 1992 Corn No statistical difference between conventional and organic; Higher in organic in drought years Cost of production (COP) similar to conventional; organic premiums were not calculated South Dakota (Dobbs and Smolik, 1996) 1985- 1992 Soybean No statistical difference between conventional and organic COP similar to conventional; organic premiums were not calculated Pennsylvania (Hanson et al., 1997) 1981- 1995 Soybean No statistical difference between conventional and organic after 3 yr.<br><br> rotation; higher in organic in drought years COP 12% lower in organic across all rotations; organic premiums were not calculated California (Clark et al., 1999) 1989- 1996 Tomatoes No statistical difference between conventional and organic COP 5% higher in organic, but with organic premiums, superior economics with organic New Jersey (Brumfield et al., 2000) 1991- 1993 Tomatoes, pumpkin, sweet corn Higher in conventional (statistics not shown) COP higher in organic when previous crop costs (cover crops) and additional management over conventional (staking) included; net return per unit 5-16% higher in organic with organic premiums Research at the Neely-Kinyon Long-Term Agroecological Research site in Iowa was conducted to examine the agronomic and economic performance of conventional and organic systems. Economic analyses from three years of production (1999-2001) indicate that both corn and soybean returns within the organic corn-soybean-oat and corn-soybean-oat-alfalfa rotations are significantly greater than returns in the conventional corn-soybean rotation. Table 2 shows the returns per acre for all crops within the three rotations.<br><br> Both organic premium prices and government loan payments are included in the analysis to reflect the economic reality for Iowa 9s farmers. 99 99 Table 2 . Returns to land, labor, and management ($/a), by crop and rotation, 1999-2001.<br><br> Source: Delate et al., 2003. Rotation Corn Soybean Oat Alfalfa Average C-SB (conventional) $51 $95 $73 C-SB-O (organic) $264 $470 $125 $286 C-SB-O-A (organic) $272 $505 $112 $272 $290 C = corn, SB = soybean, O = oat, A = alfalfa Price Premiums for Organic Grains, Oilseeds, and Legumes The above comparisons of organic and conventional systems show that even though fresh produce tops organic food sales, grain and soybean farmers can also benefit from organic agriculture. Organic grains, oilseeds, and legumes are used as inputs to manufactured products, as feed grain, and as final food products such as rice and tofu.<br><br> Crops include traditional grains and oilseeds such as corn, soybeans, wheat, barley, oats, and rice, as well as nontraditional crops such as millet, buckwheat, rye, and spelt. Many of these crops can be contracted prior to planting. Table 3 shows the price premiums for organic grains and oilseed for the time period between 1995 and 2000.<br><br> Premiums are reported as the percent higher than prices for the conventionally produced equivalent. Table 3 . Price premiums for organic grains and oilseed: 1995-2001 [% above conventional crop prices].<br><br> Source: Bertramsen and Dobbs, 2002 1995 1996 1997 1998 1999 2000 2001 Corn 35 43 73 88 98 89 59 Soybeans 114 85 141 202 217 175 177 Spring Wheat 54 59 73 8 87 103 94 Oats 35 59 73 83 77 71 41 What about GMOs? Most Nebraska farmers currently use several types of GMO seed, the most common being Round-up Ready© soybeans, Round-up Ready© corn or Bt corn. Reduced herbicide and insecticide costs are often cited as primary reasons for the use of these technologies.<br><br> Because GMOs are not allowed in organic production, farmers may be skeptical about the profitability of farming corn and soybeans organically. A study done by Michael Duffy at Iowa State University reveals that Iowa corn and soybean farmers are not benefiting economically from the use of GMO crops. In fact, Duffy states that, cToday the primary benefactors of biotechnology are the seed companies and chemical 100 100 companies. d Table 4 shows some of the costs of production and returns to labor and management based on 2000 crop price averages.<br><br> Table 4 . Comparison of returns to Iowa farmers for GMO and Non-GMO crops for the 2000 crop year. Source: Duffy, 2001.<br><br> Soybeans Corn Herbicide- Tolerant Non-Herb. Tolerant Bt Non-Bt # of Fields 108 64 # of Fields 46 128 Yield 43.4 b/a 45.0 b/a Yield 152 b/a 149 b/a Seed Costs $25.56/a $21.21/a Seed Costs $33.05/a $28.74/a Herbicide Costs $19.96/a $26.15/a Fertilizer Costs $53.30/a $48.67/a Total Weed Mgmt Costs $27.14/a $34.80/a Total Non- land Costs $207.25/a $197.00/a Return to Labor and Mgmt -$8.87/a -$0.02/a Return to Labor and Mgmt -$28.28/a -$25.20/a These results show that the use of GMO seed is not necessarily linked to increased profits. This fact is important for conventional corn and soybean farmers considering the economics of organic production.<br><br> Calculating Your Costs for Organic Production For a farmer to calculate costs of production and returns for an organic system, one method is to start with the annual publication from Cooperative Extension on costs of production of field crops (EC-xxxx). We all know that each farm differs in actual costs of each operation, but this publication gives a general guide to costs and can be modified according to individual experience and personal circumstances. The method is to make a detailed cropping system budget of the current crop rotation along with all associated costs.<br><br> Then remove those costs that involve fertilizer and chemical materials and applications costs and add in cover crop seed and planting costs and additional cultivations or whatever else will change in the potential organic system. Most difficult will be calculating projected income, since prices fluctuate widely, and the best would be to talk to dealers to find out the most probable estimate of crop prices. Using projected yields from discussions with other organic farmers or from experience, it should be possible to project costs and returns for your farm.<br><br> The Extension Circular with this information on costs of production is available from Cooperative Extension offices, or on the web: Available: 101 101 Recent Organic Growth Patterns in the U.S. Organic Foods Market By Carolyn Dimitri and Catherine Green Economic Research Service (ERS) Agriculture Information Bulletin No. AIB777 September, 2002 http://www.ers.usda.gov/publications/aib777/ Comparison of Prices for 8Organic 9 and 8Conventional 9 Grains and Soybeans in the Northern Great Plains and Upper Midwest: 1995-2000 By Bertramsen and Dobbs, Econ Pamphlet 2001-1.<br><br> (2002) South Dakota State University. An Economic Comparison of Organic and Conventional Grain Crops in a Long-term Agroecological Research (LTAR) Site in Iowa By Kathleen Delate, Michael Duffy, Craig Chase, Ann Holste, Heather Friedrich, and Noreen Wantate (2003) American Journal of Alternative Agriculture Vol 18 (2): 59-69. http://extension.agron.iastate.edu/organicag/researchreports/orgeconomics.pdf Comparative Cost Analyses of Conventional, Integrated Crop Management, and Organic Methods By R.G.<br><br> Brumfield, a. Rimal, and S. Reiners (2000) HortTechnology Vol 10(4): 785-793 Crop-yield and Economic Comparisons of Organic, Low-input, and Conventional Farming Systems in California 9s Sacramento Valley By S.<br><br> Clark, K. Klonsky, P. Livingston, and S.<br><br> Temple (1999) American Journal of Alternative Agriculture Vol 14(3): 345-354 Productivity and profitability of Conventional and Alternative Farming Systems: A Long-term On-farm Paired Comparison By T.L. Dobbs and J.D. Smolik (1996) Journal of Sustainable Agriculture Vol 9(1): 63-79 Organic Versus Conventional Grain Production in the Mid-Atlantic: An Economic and Farming System Overview By J.C.<br><br> Hanson, E. Lichtenberg, and S.E. Peters (1997) American Journal of Alternative Agriculture Vol 12(1): 209 References and Resources 102 102 Who Benefits from Biotechnology?<br><br> By Michael Duffy Presented at the American Seed Trade Association Meeting, December 5-7, 2001, Chicago, IL. http://www.leopold.iastate.edu/pubs/speech/files/120501- who_benefits_from_biotechnology.pdf Does Plating GMO Seed Boost Farmers 9 Profits? By Michael Duffy and Matt Ernst 1999 (Fall) Leopold Center Newsletter, Iowa State University http://www.leopold.iastate.edu/pubs/nwl/1999/1999-3-leoletter/99-3gmoduffy.htm Got Organic?<br><br> Natural Products Expo West Displays Growing Demand for All Things Natural By Steve Hoffman Article included at the end of this section. http://www.greenmoneyjournal.com/article.mpl?newsletterid=29&articleid=312 Consolidation in Food and Agriculture: Implications for Farmers and Consumers By Phil Howard (2003-2004 Winter) CCOF (California Certified Organic Farmers) Magazine Vol. XXI(4): 2-6 Article included at the end of this section.<br><br> http://www.agribusinessaccountability.org/pdfs//264_Consolidation in Food and Ag.pdf Useful Websites Sustainable Agriculture Research and Education This website has useful information about organic systems in general and the economics of organic agriculture specifically, including links to releveant resources. http://www.sare.org/publications/organic/organic07.htm Henry A. Wallace Institute Although the study is dated, the study provides a good overview of the competitiveness of organic corn and soybean production with conventional systems.<br><br> http://v1.winrock.org/wallacecenter/documents/pspr13.pdf