Organic Agriculture …… An Overview of a Viable Alternative Craig Chase, Field Specialist Farm & Ag Business Management

Session Agenda Quick Overview - Organic Profitability of the Neely-Kinyon Study Review – Iowa Organic Crop Production Enterprise Budgets (Fm 1876) Discussion – Economics of Transitioning Quick Overview - Iowa Vegetable Production Budgets (Pm 2017) & Using Enterprise Budgets to Make Decisions (Fm 1875)

Transitioning Into Organics The Neely-Kinyon Research Farm is located in SW Iowa (Greenfield) Focus on comparing Two Production Systems Conventional corn-soybean rotation Organic corn-soybean-oat/alfalfa-alfalfa Organic cropping systems were established in 1998; certified organic in 2000.

Returns to Management, by Crop and Rotation, 2000-2004 Neely-Kinyon Study

Bottom Line – Neely Kinyon In general, organic rotations are more profitable than conventional corn-soybean rotations with or without government program payments and without premiums. Only when you combine worst case scenarios – extremely high labor and fertility costs, no premiums, etc., is the conventional corn-soybean rotation economically competitive.

Iowa Organic Budgets Let’s take a look… According to Extension Publication (Fm 1876) What rotation are we looking at? What is the returns to each crop? What is the returns to the rotation? Is an organic rotation economically viable?

So How Do You Transition? In simple terms, there are primarily two choices. Whole farm; each crop within the rotation Piecemeal Combination of organic and conventional practices and rotations Start with a crop to help agronomically with the system (weed control or fertility) Or time it so when the farm becomes certified you are selling a high valued crop.

Returns to Management, Whole Farm/Each Crop, 1998-1999 Neely-Kinyon Study

Classic Risk/Reward Based on Neely-Kinyon study, transitioning into organics is the classic risk/reward. Risk is -$20 per acre more per year for two years. Reward is +$200 per acre more per year after certification. The point is not to focus on the exact numbers, but rather look at the relationship. In particular, how long will it take to repay the additional $40 loss? Answer: could get your money back plus interest in the first year.

Piecemeal Transitions Piecemeal transitions are generally implemented for agronomic and marketing/economic reasons. Fertility for corn and maintaining weed control for soybeans are often cited as difficult in the transition period.

Transition Yields, by Crop and Rotation, 1998-1999 Neely-Kinyon Study

Transition Yields Yield drags are often 10% or more. For the Neely-Kinyon study, first year yields were off 20%. Why? Poor fertility. However, yield drags don’t occur in every case. Interestingly, soybean yields were very similar among the various rotations. However, this may not always be the case.

Bottom Line Bottom line – an organic system needs to be managed differently than a conventional system. If managed well and planned for, the transition can be accomplished without a dramatic decline in economic returns. Once the system is up and running, returns will be substantially higher.

Vegetable Production Let’s look at the Iowa vegetable budgets (Pm-2017)… As you look at the various crops, what is the average return above all costs per bed (rough estimate)? How many beds are in an acre? How many acres can one person handle?

Vegetable Economics Average return above total costs: For the 14 budgets – around $120 per bed 70 beds - $8,400 per acre Maybe slightly high due to influence of heirloom tomatoes - $87 per bed average without them. 70 beds at $90 per bed - $6,300 per acre.

Vegetable Economics Maximum acres for one person – 2.5 Maximum net for one person - $15,750 Questions: Is that adequate? Is labor available, at what cost, and are you willing to manage it?

Vegetable Economics Additional Questions: Is there a way to become more labor efficient or is there a way to raise revenues without raising costs (change production practices)? Is there a way to increase market price through differentiation, market segmentation, or other marketing efforts (change pricing)? Can what is grown be changed to reduce labor and/or increase revenues (change product mix)?

Returns over Total Costs Example: Product Mix Returns over Total Costs Hours of Labor Returns over Total/Hr Asparagus $ 35.47 2.95 $ 12.02 Basil $ 164.19 6.90 $ 23.80 Carrots $ 54.02 5.35 $ 10.10 Cherry Tomatoes $ 181.11 11.20 $ 16.17 Eggplant $ 85.02 6.45 $ 13.18 Specialty Green Beans $ 140.27 18.25 $ 7.69 Garlic $ 43.89 7.15 $ 6.13 Greens $ 102.90 2.80 $ 36.75 Heirloom Tomatoes $ 547.21 $ 48.86 Potatoes $ 61.65 5.10 $ 12.09 Red Raspberries $ 131.50 6.15 $ 21.38 Snow Peas $ 58.45 7.65 $ 7.64 Strawberries $ 55.46 1.55 $ 35.78

Bottom Line Vegetable production is a high value, low volume alternative to conventional agriculture. The size of farm depends on the availability of labor and the ability to manage it. Changes in production practices, pricing, and product mix could increase revenues and returns over total costs substantially.

Thank You for This Opportunity! Questions….. Any questions or comments on organic enterprises? Thank You for This Opportunity! Craig A. Chase Farm Management Field Specialist 720 7th Avenue SW Tripoli, IA 50676 (319) 882-4275 cchase@iastate.edu