Organic Farming Versus Conventional Farming: Profitability
Conventional farming is a risky business, with the majority of farms failing to turn a profit in any given year. Organic farming does pose several advantages, including lower operating costs (labor excepted) and a higher price-point on certified organic crops, but due to the high entry costs, including requiring years of carefully building up the soil, only 1% of farms in the US have switched to organic farming methods so far.
OVERALL FARM PROFITABILITY
Note: Due to the fact that organic farms comprise such a small percentage of the overall agricultural industry (see below), the following data points primarily concern conventional farming, though many articles mention organic farming as being rolled into their statistics as well.
- Average grain farms made only $9 of profit per acre in 2018, reflecting an average of $673 per acre in revenue and $664 per acre in operating costs.
- External factors, such as large crop yields, trade disputes, rising interest rates, and higher labor, feed, and fuel prices, resulted in net farm income across the US declining by $3 billion in 2018, with a further $3 billion decline expected for 2019.
- Median farm income is currently in the negatives due to the number of unprofitable farms, with the USDA estimating it at negative $1,548 in 2018.
- Large farms (those grossing over $1 million annually) account for 56% to 69% of all net farm income in the US.
- Only 41% of small farmers (defined as those grossing $350,000 or less per year) turn a profit each year, and 64% work a second job.
ORGANIC FARMING PROS AND CONS
- According to a 2015 USDA study, while organic crops have a significantly lower yield than conventional crops, "total operating costs and operating plus capital costs per acre for organic corn were about $80 and $50 per acre lower, respectively, than for conventional corn."
- The exception to the lower operating costs is in labor, where costs rise from just over $20 per acre to nearly $70.
- Higher labor costs largely reflect the need to constantly weed the field.
- This may be why organic farms tend to be far smaller than conventional farms, just 285 acres on average compared to the average conventional farm of 444 acres.
ORGANIC FOOD PRICE PREMIUMS
- Organic crops also sell at a higher price. For example, in 2014, organic corn averaged $5 to $10 higher in price per bushel while what averaged $3.90 to $4.46 higher per bushel.
- The higher price commanded by organic crops continued into 2017, with a bushel of conventional Iowa corn selling for just $3 compared to $8.70 for organic.
- Likewise, organic soybeans sold for $19 per bushel compared to just $9 per bushel for conventional.
- Another study states that "prices for certified organic crops are up to 35 percent higher than conventional crops."
- According to one ISU Extension food specialist, "farmers converting their whole operation to organic over five years would average $206 per acre," while conventional farmers would lose an average of $33 per acre.
BARRIERS TO ENTRY
- Despite the greater profitability, only about 1% of farmland in the US is organic; 20% of all organic farmland is located in California.
- Some barriers to small farms being certified as organic include "insecure land tenure, costs of certification, and lack of access to markets."
- In addition, farmers wishing to go organic require "patient years of building up soils — through practices such as cover cropping, regenerative grazing, and application of organic matter — before realizing increased incomes from opportunities such as organic certification (which takes three years) and its associated premiums."
Our research strategy for this project was relatively straightforward. We searched both official sources of information like the USDA's Economic Research Service, industry sources like Modern Farmer and the University of Illinois' Farm Policy News, and also conducted a sweep of mainline news sources to determine whether there had been any recent notable news concerning the profitability of farming, both organic and mainline. As this is a subject that is under constant discussion across numerous sources,
There were a few limitations in the data. First, there is no public data on the profitability of individual farms; rather, the available public data is all in aggregate. Second, the profitability of individual farms varies greatly. Third, organic farms tend to be far smaller than conventional. Due to these factors, making an apples-to-apples comparison between the profitability of conventional vs. organic farming in farms of the same size in the same region selling similar mixes of crops.
Finally, while it is normally Wonder's policy to use only sources published within the past two years in order to ensure that we are providing the most up-to-date information available, one of our most informative and complete sources is a 2015 study by the USDA which directly compares costs, revenue, and profitability of conventional and organic farming. We searched the USDA website for an update to the study, but one does not appear to have been published as yet. We have therefore included this source in our findings, though favoring more recent data where it is available.