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PURDUE AG ECONOMIST COMPARES CONVENTIONAL AND ORGANIC ENTERPRISE NET RETURNS
Aug. 8, 2022
by Michael Langemeier, Center for Commercial Agriculture,
Purdue University
Due to continued increases in demand for certified organic grains, crop farmers that have transitioned from conventional to certified organic grains report higher net returns per acre (McBride et al., 2015; Greene et al., 2017; Langemeier et al., 2020; Langemeier and O'Donnell, 2021; Center for Farm Financial Management, 2022). Despite this, certified organic land accounts for less than 2 percent of U.S. farmland (U.S. Agricultural Census, 2017). Information pertaining to the relative profitability of conventional and organic production is often lacking.
A farmdoc daily article written in October 2021 (October 1, 2021) compared net returns for conventional and organic crop enterprises using FINBIN data from 2016 to 2020. This article uses FINBIN data from 2017 to 2021 to update comparisons of crop yields, gross revenue, total expense, and net returns for conventional and organic alfalfa, corn, oats, soybeans, and winter wheat. The organic enterprise data represents farms that have already transitioned to organic production, and thus do not include information pertaining to the transition phase.
Crop Yields
Table 1 shows the average conventional and organic crop yields for alfalfa, corn, oats, soybeans, and winter wheat. The ratio illustrated in the last column of the table was computed by dividing the organic crop yield by the conventional crop yield. Alfalfa exhibited the smallest difference in crop yields between conventional and organic crops. The yield drags for corn, oats, soybeans, and winter wheat were 28 percent, 31 percent, 26 percent, and 43 percent, respectively.
Gross Revenue, Total Expense, and Net Return to Land
Gross revenue, total expense, and net return to land per unit for alfalfa, corn, oats, soybeans, and winter wheat are presented in Table 2. Gross revenue includes crop revenue, crop insurance indemnity payments, government payments, and miscellaneous income. Total expenses include all cash and opportunity costs, other than those associated with owned farmland.
Farmland costs included in the total expense reported in Table 2 were comprised of cash rent, real estate taxes, and interest, which would be lower than the full opportunity cost on owned land.
Just to give the reader some idea as to how large this excluded cost may be, you would need to add an estimated $0.15 per bushel ($0.50 per bushel) to the total expense for conventional corn (conventional soybeans) if you wanted to account for the full opportunity cost on owned land. Also, note that the per unit net returns presented in Table 2 represent a net return to land rather than an economic profit.
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