Study: Rethink rotations before switching to organic grains
WEST LAFAYETTE, Ind. – Indiana farmers interested in shifting from conventional to organic grain production should be prepared to rethink traditional crop rotations and view the first few years of production as an investment, according to a Purdue University study.
For Hoosier producers, that means the most profitable organic crop rotation begins with corn and soybeans, and is followed by wheat and/or alfalfa in a third or fourth year, said Corinne Alexander, Purdue agricultural economist and the study's lead researcher.
However, producers won't receive the higher crop prices commanded by organic grains in those years when land is being transitioned from conventional to organic production, Alexander said.
"The two big take-home messages from our study are that organic premiums are necessary for making organic production more profitable than conventional production, and the order in which you choose to transition will affect the profitability of that transition," she said. "So, if you're thinking about doing this, there are ways to do it more profitably."
Although consumer demand for organic foods jumped 19 percent between 2005 and 2006 - and continues to grow - there were only 5,156 acres of certified organic production in Indiana in 2005, according to the Organic Trade Association and the U.S. Department of Agriculture's Economic Research Service.
One probable reason more organic grains aren't grown in Indiana is the cost of transitioning from conventional to organic crops, Alexander said. Farmers are likely to incur higher labor expenses as they wean off of commercial pesticides and fertilizers while they adapt to the USDA's requirement of at least a three-year transition period for organic certification.
"During that three-year transition period, the farmer who is transitioning the land to certified organic must use all organic practices, which typically tend to mean lower yields than the conventional system," Alexander said.
"The hardship on those farmers, though, is that they have to then sell the product from that land at conventional prices rather than at organic prices, which trade generally at a premium. So that three-year transition period is very much an investment for the farmer transitioning into organic. Once they reach organic status, they get to sell their crops at an organic premium."
Organic field crops usually sell at prices 50-200 percent higher than those grown conventionally, with organic corn and soybeans receiving the top premiums, the Purdue study reported.
In the study, Alexander and agricultural economics graduate student Samuel Clark examined three different possible crop rotations for transitioning to organic: 1) corn-soybeans-wheat/alfalfa-alfalfa; 2) soybeans-wheat/alfalfa-alfalfa-corn; and 3) wheat/alfalfa-alfalfa-corn-soybeans. They found that rotation No. 1 provided the highest first-crop profitability, while rotation No. 3 realized the lowest initial profit.
The average premium for rotation No. 1 was nearly $2,000 an acre, with the average per-acre premium for rotation No. 3 at about $1,400.
Conventional rotations of corn-soybeans and soybeans-corn generated about $1,200 per acre, the study showed.
"When you're starting to think about transitioning to organic, it's not sufficient to just look at the profitability from organic corn compared to the profitability from conventional corn," Alexander said. "You have to compare the two systems in larger, multi-year sections. You've got to do it as a four-year or six-year rotation and compare the profitability over multiple years, because the typical Indiana conventional farmer is going to do a corn-bean rotation because that's the most profitable."
The study also found that:
* Without market premiums, organic grains are less profitable than conventional grains.
* After transitional period yield penalties, organic grain yields should return to conventional production yield levels because of the accumulation of organic soil matter.
* Organic grain production doesn't work for every farmer.
"The type of farmer it may make sense for is someone who has a smaller acreage in an area with high land values, where they are not going to be able to purchase more land and expand their revenues through expanding their land base," Alexander said. "If they want to expand their revenue a different way, they can do it through a higher-value crop like an organic system, because a smaller-acreage farmer probably has more labor and more time to spend on that smaller acreage.
"Organic production certainly is not for everybody. It's just an answer for some people who are in certain circumstances where this meshes well with their situation."
The Purdue study, "The Profitability of Transitioning to Organic Grain Crops in Indiana," appeared in the February issue of Purdue Agricultural Economics Report (PAER). The PAER article is available online at https://www.agecon.purdue.edu/extension/pubs/paer/2010/february/alexander.asp
Writer: Steve Leer, 765-494-8415, sleer@purdue.edu
Source: Corinne Alexander, 765-494-4249, cealexan@purdue.edu
Ag Communications: (765) 494-8415;
Steve Leer, sleer@purdue.edu
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