1. Organic Vegetables/Grains
Production, Market, and Expected Return
December 2008
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Overview
Climate : Adaptable to Center and Western Kentucky
Organic crop production began to develop as an industry in the 1970’s
Regulated by the Organic Foods Production Act of 1990 and the National Organic Program (NOP)
Certification requirements are mandatory as of 2002
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Market Opportunities
Direct Marketing
-Roadside stands
-Farmers markets
Wholesale Marketing
-to local grocery stores
-produce wholesalers
-produce auctions
Opportunities may exist through restaurants and health food stores
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4. Market Opportunities (continued)
Price Premium Opportunities
-Comparison of conventional to organic prices from
Note: Limited availability of price data means the above premiums cannot be generalized to all organic goods.
Conventional
Organic
Unit
Wholesale Broccoli
$8-12
$18-38
Carton (14-18 count bunches)
Wholesale carrots
$10-13
$19-34
Sack (24 count-2 Lb. bags)
Wholesale Mesclun mix (lettuce)
$6-9
$6-10
3Lb. Carton
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5. Market Opportunities (continued)
Marketing in Kentucky
-In Kentucky, “the majority of certified organic mixed vegetables and fruits are grown near larger urban areas, where there are established direct markets at local farmers’ markets, restaurants, and local grocery stores.” (Southern Organic Resource Guide website)
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6. Production Characteristics
Certification Requirements
-must comply with NOP regulations (
-growers are required to develop and follow an Organic System Plan (OSP).
OSP must contain:
-Details on current production, harvesting, and storage methods
-Details on all inputs that will be used
-Must be updated and approved annually.
-Record keeping is essential (maintain records on all transactions for 5 years)
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7. Production Characteristics
Planning
-Land must be free of synthetic pesticides and artificial fertilizers for 3 years before production can begin
-Conversion from conventional to full organic production can take from 3 to 5 years depending upon the crop, soil fertility and approach
-Selecting a site that is well-suited to the crop is essential to successful organic production
-Timing of fertilizer & seed will vary depending on the crop. However, perennial crops must be grown organically for 12 months before they can be sold as “certified”.
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8. Production Characteristics
Production Methods (good farming practice w/o synthetic chemicals)
-Planned crop rotations are required
-Perennial cropping systems rely on alternative methods such as: intercropping, alley cropping, and hedgerows
-Mulching materials can be natural (e.g. wood chips), certain allowable synthetics (e.g. newspapers), or plastic mulch if it is removed at the end of the harvest season.
-Healthy soil is key: Soil fertility is increased through cover crops, nitrogen fixing legumes, manure and approved natural fertilizers
-Must be protected from contamination by adjoining conventional farms
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9. Production Characteristics
Pest Management
-May be the greatest challenge in organic farming
Strategies include:
-crop rotations that disrupt the pest life cycle, improving soil quality, good sanitation, optimum planting densities, growing resistant varieties, transplanting operations to avoid high pest popluations
-NOP-approved pesticides can be used, but are seen as a last resort
-Frequent inspections and accurate identification are essential
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10. Production Characteristics
Harvest and Storage
-Products grown organically during the transition period can be marketed as organic. But only those crops that have met NOP standards, including the 3-year transition period, can be marketed as certified organic goods.
-Yield in full production are usually 90-95% of conventional yield, however, studies have shown organic yields can actually be higher than conventional yields during drought years.
-Equipment, storage areas & packaging must meet NOP standards
-Growers with split operations must use separate equipment and facilities or follow decontamination protocol.
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11. Production Characteristics
Labor Requirements
-More labor intensive than conventional production
-Increased labor attributed to monitoring and managing pests
-Labor hours per acre can be as much as 11% higher for agronomic crops; increase can be much greater for horticultural crops
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12. Production Opportunities
Capital Requirements
-Land acreage, equipment, and storage facility requirements will vary depending upon the crop and scale of operations
-Equipment generally required will include:
-tractor, plow, pickup truck or larger truck, sprayer, proper storage facility
Labor Requirements (minimal labor training) costs are market rates for agriculture labor (2008 labor rate: $9.00).
Land Opportunity Cost (lease value for class A: $100)
-land costs increase with proximity to more rural areas (where more market opportunities exist)
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Revenue
Revenue sources
Revenue will vary depending upon the type of crop, price premiums received for the organic crop, and yield.
Secondary sources : None
Production incentives from the government
The U.S. Government has largely taken a free-market approach to the organic sector, and policy is aimed at facilitating market development.
The NOP has a cost-share program, however, Kentucky is currently not eligible for the program.
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Product Cost Overview
Full Production Year
Variable Costs
Soil amendments (compost)
Fertilizer
Irrigation
Variable Machinery Costs (e.g., feul)
Marketing Costs
Refrigeration/Storage
Hired Labor
Fixed Machinery Costs
Fixed Irrigation System Costs
Fixed Refrigeration Cost
Fixed Land Costs
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15. Expected Return Report Example: Organic Corn
Assumes 1 acre yields 75 bushels
Production (bushels) 75
375
750
1,500
Acres required 1 5 10 20
Revenue ($6 per bushel)
$450.00
$2,250
$4,500
$9,000
Operating/Cultivating Costs
$192.66
$963.30
$1,926.60
$3,853.20
Labor Cost excluding Principle
$19.40
$97
$194
$388
Other Variable
$30.00
$150
$300
$600
Capital Cost excluding Interest
$95.90
$479.50
$959
$1,918
Production Return
$112.04
$560.20
$1,120.40
$2,240.80
Source for assumptions:
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Risk
Market Risk: prices can be significantly variable depending on the type of crop and market demand
Production Risks:
-pest management
-maintaining NOP standards
-yields tend to be 5-10% less than conventional methods
Financial Risk: significant initial investment is needed during 3 year transition period when returns are expected to be much less than in full production
-cash and other requirements during each production year
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Basic Summary
Market Opportunity:
-Organic crops are in increasing demand
-often receive price premiums
-Opportunities in Kentucky through direct and wholesale markets
Advantages of Western and Center Kentucky
Normal endowed resources (Building / Land) adaptable to organic production
Existence of rural markets in the region
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Bibliography
Market Opportunities -
-Southern Organic Resource Guide:
Production Characteristics -
Certification Requirements
-National Organic Program
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Bibliography
Budgeting/Risk Assessment -
General -
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