Organic Farming More Profitable, Analysis Finds
Minneapolis — Organic farming is more profitable than conventional farming, according to a new report that analyzes dozens of studies.
The analysis, published in the Proceedings of the National Academy of Sciences, found that the premium organic farmers can charge for their products makes their operations financially sustainable.
“We found that, in spite of lower yields, organic agriculture was significantly more profitable than conventional agriculture and has room to expand globally,” said study co-author David Crowder, assistant professor of entomology at Washington State University.
Crowder and John Reganold, a soil science professor at the same university, analyzed 44 studies comparing the financial performance of organic and conventional agriculture, which included 55 crops grown in 14 countries. They found that if organic farmers did not charge a premium, they made less than conventional farmers, but when they did charge a premium, organic agriculture was 22 to 35 percent more profitable.
The results were not a surprise to Robert King, University of Minnesota professor in the department of applied economics. “We’ve looked at the literature on this time and time again,” King said. “The result is that on a per-acre basis, especially with organic premiums, organic comes out to be more profitable.”
Organic farming does not use synthetic chemicals and genetically modified organisms, so King said organic growers don’t spend as much on herbicides and premium seeds as conventional farmers. But because organic growers don’t use weed killers and need to cultivate, he said, they spend more on labor and usually receive lower yields per acre, depending on the crop.
“The costs for each system are pretty much a wash,” King said, but organic farmers make more money because their products fetch higher prices. For the past five years the university has been following the progress of Minnesota farmers that are transitioning to organic, he said.
In order to break even, organic farmers would need to charge 5 to 7 percent more for their produce, according to Crowder. But since organic growers usually charged a 29 to 32 percent premium, he said, “the typical average organic farmer is making a 30 percent profit margin over a conventional farmer growing the same crops.”
The results raise a question: If organic farming is so profitable, why aren’t more crop and livestock producers adopting it?
King said there are several reasons, but especially the financial risks of making the transition from conventional to organic.
That change often takes about three years for crops, he said. During that time, farmers must document that the land is managed according to organic practices, but must also sell crops at the lower conventional prices.
“That’s a big hit on the revenue side,” King said.
Because farmers are vulnerable, Crowder said, most take it a step at a time, at least for crops.
“Most of the growers that we work with, and probably in the United States in particular, do a little bit of organic and a lot of conventional,” Crowder said. “If they make a little bit of money on that organic acreage, they might convert more of their farm.”
But a gradual transition is not an option for dairy producers, whose herds have to eat only organic feed for a year before becoming eligible to be certified as organic.
Crowder said the challenge for policymakers is to develop policies to help farmers during the process of converting to organic and other more sustainable systems.
He also acknowledged critics who say that organic systems with lower yields require more land to produce the same amount of food as conventional farms, and that organic products may not be as accessible to some consumers because of the high premiums.
The analysis examined factors from total costs to labor costs, gross returns and yields. “This is the first large-scale synthesis of economic sustainability of organic farming compared to conventional that we know of,” Crowder said. He and Reganold consulted with three agricultural economists to confirm their findings.
The study did not attempt to forecast future prices, including whether a major switch to organic farming might cause premiums — and therefore profits — to drop.
“With only 1 percent of the global agricultural land in organic production, our findings suggest that organic agriculture can continue to expand even if premiums decline,” the study concluded.
King agreed, and said that Minnesota is not seeing a big expansion in organic acreage. In 2011, he said, the state had 434 organic farms on about 125,000 acres of certified organic land — or about 0.5 percent of total farmland.
“In the short term, it doesn’t look like there will be a lot of downward pressure on the premiums,” he said.
The financial comparisons study also did not factor in the environmental costs and benefits of the different farming systems. However, Crowder said the benefits of organic practices include equal or more nutritious foods with less or no pesticide residue, improved soil quality, greater plant and wildlife diversity, and less pesticide and nutrient pollution of ground and surface water.