Organic vs. conventional: where’s the profit?

For more than five years, organic proponents in Western Canada have encouraged farmers to switch to organic crop production.

Their No. 1 reason to go organic: it’s more profitable than conventional farming.

An agricultural economist from Manitoba, who is now at the University of Illinois, says the evidence doesn’t support that argument.

Farm financial data from the United States Department of Agriculture suggests profits are similar for organic and conventional producers.

“On average, organic farms aren’t different from their conventional counterparts, when it comes to per acre profitability,” said Joe Janzen, who studied at the University of Manitoba before earning a PhD in ag economics from the University of California, Davis.

His dad and brother operate a farm just west of Winnipeg, near St. Francois Xavier.

Janzen and Kate Fuller, an agricultural economist at Montana State University, have written a journal article in Land Economics, looking at organic farmland and rental rates.

In their research, they used information from the USDA’s Agricultural Resource Management Survey, a database of farm financial information.

Within that data, they studied the net returns of organic farms. Yes, some organic farmers make a great deal of money. But others do not.

There’s a wide variation in profitability, from farm to farm, whether the producers are organic or conventional, Janzen said.

“It’s really difficult to say that organic farms are, across the board, on average, more profitable than conventional farms…. We can’t find any meaningful difference in per acre profitability — between those organic farms and the conventional ones.”

Janzen’s conclusion is based on USDA data from 2003-2011. The information isn’t current but it remains relevant, he said.

When the researchers compared organic to conventional farms in North Dakota, South Dakota and Montana, the result was similar to the overall finding — organic farms are not more profitable. The Northern Plains is similar to Western Canada, so Janzen’s conclusion may apply to the Prairies.

“Farm financial conditions aren’t exactly the same (in Canada) but they’re closely related because the farms are operating in global markets for commodities and use the same production technology,” he said.

That doesn’t jibe with research in Canada.

In 2015 Pro-Cert, an organic certification service, published a white paper on the economic advantages of organic. In it, they studied the different soil zones of the Prairies.

In the brown soil zone:

  • A three-year organic rotation of oats, wheat and legume plow-down produced an annual profit of $195 per acre, on average
  • A four-year conventional rotation of canola, spring wheat, lentils and spring wheat generated an annual profit of $84, on average

In all soil zones across the Prairies, Pro-Cert found that organic returns per acre were about double the returns in conventional production.

“These numbers clearly demonstrate that the organic advantage over conventional holds true for the entire arable Western Canadian prairie and parkland region,” the paper said. “Organic prairie grain farmers, regardless of their effective precipitation/soil zone, need to spend half as much per acre in order to make twice as much as their conventional neighbours.”

Rental rates for organic land

In his research, Janzen didn’t focus on organic profitability.

He was more interested in the value of organic farmland and constraints on organic production.

It’s difficult to compare organic land value and rental rates to conventional land in the U.S., because many organic farms are in California, a state with sky-high land prices.

Janzen and Fuller picked through the data to compare apples to apples.

“(We compared) farms that are in the same area, that produce the same crops and have similar… proximity to urban areas, similar soil quality,” Janzen said.

They determined that U.S. farmers were willing to pay more for certified organic land.

“The USDA Agricultural Resource Management Surveys (ARMS) conducted between 2003 and 2011 showed median cash rental rates paid by organic farms for cropland were 23 percent higher than rental rates paid by conventional farms,” they wrote. “Median reported cropland values were 26 percent higher for organic farms.”

The premiums are puzzling. If conventional farming is just as profitable as organic, why would someone pay more to rent organic land?

It may be connected to the three-year transition, required to get organic certification.

That period is costly for farmers and has value, Janzen said.

“We think that’s where some of that rental premium comes from. It’s a return for the landowner, for going through that really unprofitable time where they transitioned the land.”

Mercaris, a market data firm for non-GMO and organic food, has also looked at the value of organically certified cropland.

In a study published in mid-August, Mercaris said there’s a premium on organic cropland values and rental rates in America.

Janzen, in his study, said the cost of organic land may be one reason for the “discord” in the U.S. market, where demand for organic food is booming, but growth in organic production is slow.

“To spur more rapid conversion of (U.S.) farmland… organic food (buyers) must provide greater incentives to both farmers and landowners to transition land to organic,” he wrote. “That incentive can either be provided by lowering conversion costs or increasing the return on investment.”

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