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Organic Agriculture ……. Making the transition…. Craig Chase, Field Specialist Farm & Ag Business Management. Profitability of Row Crop Systems. The debate is over…organic systems offer the classic economic risk/reward opportunity.

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organic agriculture

Organic Agriculture ……

Making the transition…

Craig Chase, Field Specialist

Farm & Ag Business Management

profitability of row crop systems
Profitability of Row Crop Systems
  • The debate is over…organic systems offer the classic economic risk/reward opportunity.
  • Organic systems, if managed properly, are more profitable per acre (on average) than conventional farms in Iowa.
  • If your net farm income goal is $40,000 per year, an Iowa organic farm can reach this goal (on average) with less than 200 acres versus 2,000 acres (or more) for the conventional corn-soybean farm.
so then the main question becomes
So then the main question becomes…
  • How to transition - for row crops the following questions related to economics should be answered:
    • What’s the optimum rotation and order of crops (which crop to transition first)?
    • Whole farm or field-by-field transition?
    • Weed management techniques; which combination of mechanical field operations?
economic transition questions cont d
Economic Transition Questions – cont’d
  • Machinery implements; purchase, lease or custom hire for implements not already owned?
  • Manure/compost source – should livestock be integrated into the whole farm system, which type, and if not, where should manure be sourced?
  • Note: the economic evaluation should be focused on both individual enterprises and the entire farming operation.
economic evaluation is it working
Economic Evaluation – Is it Working?
  • Individual enterprise evaluation
    • Develop enterprise budgets for each crop in the rotation (both during and after the transition).
    • Enterprise budgets show where the weaknesses and strengths are of the rotation and where production changes can be made.
  • Whole farm evaluation
    • Combine all enterprise budgets including livestock, if applicable, to determine whole-farm profitability.
economic evaluation is it working1
Economic Evaluation – Is it Working?
  • So what happened (comparison of alternative strategies)?
    • How profitable?
    • What risks were involved?
    • Which transition made more sense to you?
organic vegetables

Organic Vegetables

Transitioning into higher profitability…

Craig Chase, Field Specialist

Farm & Ag Business Management

profitability of vegetable crop systems
Profitability of Vegetable Crop Systems
  • Organic systems again offer the classic economic risk/reward opportunity.
  • The key to profitability with vegetable crop systems, however, is more focused on marketing outlets and pricing than rotation, weed management, and machinery acquisition.
  • In addition, an understanding of profit margins (e.g., net income ratio) is necessary to price product effectively.
vegetable planning questions
Vegetable Planning Questions
  • How many acres do I need in production to meet my planning goals?
  • What is my “best” market?
  • What price do I sell my products at?
  • What is my net income ratio and gross sales per acre?
  • These questions are important because organic vegetable production is a highly labor-intensive business.
how big
How big?
  • You want to grow vegetables and want to have a net income of $30,000 per year.
  • You estimate your gross revenue per acre will be $15,000 per acre.
  • You want to achieve a net income ratio of 30%.
  • You will need to produce vegetables on 6.7 acres ($30,000/30% = $100,000 sales / $15,000 / acre = 6.7 acres.
pricing
Pricing?
  • You need to know your cost of producing and marketing your products.
  • Assume your cost to produce and market your tomatoes is $2 per pound.
  • You want to achieve a net income ratio (or profit margin) of 30%.
  • You need to price your tomatoes at $2.86 per pound ($2/.7).
bottom line
Bottom Line
  • My view: To be profitable in the organic vegetable business you need to understanding profit margins (both revenues and costs) and price accordingly.
economic evaluation is it working2
Economic Evaluation – Is it Working?
  • Individual enterprise evaluation
    • For producers who grow a large number of different products. Develop budgets for those products that contribute the most to business goals.
    • Enterprise budgets can be used for pricing, as well as evaluating changes to production practices and product mix.
slide14
In addition to crop enterprise budgets, a detailed look at marketing costs are necessary.

Marketing costs (those costs associated with the marketing and delivery of the product from the farm to the customer) can be much greater than the cost of production.

Economic Evaluation – Is it Working?

whole farm records
Whole-Farm Records

What if you don’t have records at the enterprise level?

Economic evaluations regarding pricing and marketing outlets can be made using whole-farm records if you have a few enterprises.

resources
Resources
  • Agricultural Decision Maker

(http://www.extension.iastate.edu/agdm/authors/cchase.html).

    • Organic Crop Production Enterprise Budgets
    • Making the Transition from Conventional to Organic
    • Developing Enterprise Budgets
    • Using Enterprise Budgets to Make Decisions
    • Using Financial and Production Records to Make Decisions
resources1
Resources
  • Agricultural Decision Maker

(http://www.extension.iastate.edu/agdm/authors/cchase.html).

    • Iowa Vegetable Production Budgets
    • Pricing for Profit
    • Price Determination for CSA Share Boxes
resources2
Resources
  • Building a Sustainable Business http://www.misa.umn.edu/vd/bizplan.html
  • ATTRA http://www.attra.org/
  • Ag Marketing Resource Center http://www.agmrc.org/
  • And… someone that has gone through the process already
questions
Questions…..

Any questions or comments?

Thank You for This Opportunity!

Craig A. Chase

Farm Management-Local Food Systems and Alternative Enterprises

312 Westbrook Lane

Ames, IA 50014

(319) 238-2997

cchase@iastate.edu

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