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PURDUE AG ECONOMIST ANALYZES PROFITABILITY OF CONVENTIONALLY RAISED AND ORGANIC CROPS


By Michael Langemeier, Center for Commercial Agriculture, Purdue University

Information pertaining to the relative profitability of conventional and organic production is often lacking. A previous article compared net returns for conventional and organic crop enterprises using FINBIN data from 2018 to 2022 (Langemeier, 2023). This article uses FINBIN data from 2019 to 2023 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 (12 percent) between conventional and organic crops. The yield drags for corn, oats, soybeans, and winter wheat were 25 percent, 35 percent, 26 percent, and 40 percent, respectively.

Gross Revenue, Total Expense, and Net Return to Land

Gross revenue, total expense, and net return to land per unit (per acre) for alfalfa, corn, oats, soybeans, and winter wheat are presented in Table 2 (Table 3). 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 and Table 3 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 $0.28 per bushel ($0.94 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 and per acre net returns presented in Table 2 and Table 3 represent a net return to land rather than an economic profit.

Though conventional and organic crops face different market phenomena, it is common to compare conventional and organic gross revenue per unit and crop prices, and net return to land on a per acre basis. Comparing organic to conventional gross revenue per unit reported in Table 2, the smallest ratio of organic to conventional gross revenue per unit was for alfalfa (1.11) and the largest ratio (2.18) was for soybeans. Organic oats and winter wheat gross revenue per unit were 1.59 and 1.70 times their conventional counterparts, while the organic corn gross revenue per unit was approximately 1.91 times higher than the conventional corn gross revenue per unit. The gross revenue per unit ratios reported in Table 2 represent five-year averages. The gross revenue per unit and crop price ratios for individual crops vary from year to year. For example, during the 2019 to 2023 period, the corn price ratio ranged from 1.67 in 2022 to 2.35 in 2019, and soybean price ratio ranged from 1.79 in 2023 to 2.36 in 2021.

It is important to note that the net returns reported in Table 2 are on a per-unit basis. Given the differences in crop yields between conventional and organic crops, it is often more relevant to examine differences in per acre net returns than per-unit net returns. The average difference in net returns to land between the organic and conventional crops was $115 per acre. The largest difference was $359 per acre for corn. The difference for soybeans was $296 per acre. The differences for alfalfa, oats, and winter wheat were -$21, -$15, and -$44 per acre, respectively, indicating that the conventional alfalfa, oats, and winter wheat enterprises were more profitable than organic alfalfa, oats, and winter wheat. The lack of profits for the organic small grains and forages has important implications for organic crop rotations. Most organic crop rotations include a small grain or a forage such as alfalfa in the rotation. Market opportunities for organic small grains and forages vary substantially by region, and it can be difficult to find markets for these crops.

Difference in Net Returns Among Farms

The results above focus on differences in average net return to land. Economists have long pointed out the large differences in financial performance among farms. To account for the differences among farms, we used the FINBIN database to examine net returns for conventional and organic corn and soybean enterprises.

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