Organic Agriculture in Ohio: An Economic Perspective

Production agriculture is under pressure to become more environmentally sound and sustainable. The current intense use of farm chemicals is a major source of contention. There are several “technologies” that may allow farmers to produce with fewer chemical inputs. The economic incentive for a farmer to adopt one of these technologies is influenced by the relative costs of the various inputs, relative values of outputs, and the physical nature of input and/or output substitution. This paper evaluates farm‐level profitability of organic farmers relative to “conventional” farms by statistical comparison of random samples of all Ohio farms and of Ohio certified organic producers. Results suggest that while Ohio certified organic farmers receive premium prices for commodities and have dramatically reduced expenditures for fertilizers and other chemical inputs, they also realize reduced yields and have smaller farm units. Whole‐farm profits do not differ greatly between organic and conventional farms. This fact relies importantly on the existence of premium commodity prices. A significant increase in the volume of organic marketings, without offsetting increase in the demand for organic commodities, would result in substantial reductions in organic price premium. Research Question Production agriculture is under pressure to become more environmentally sound and sustainable. The current intense use of farm chemicals is a major source of contention. This research evaluates farm‐level profitability of organic farmers relative to “conventional” farms by a comparison of a random sample of all Ohio farms and a survey of all Ohio certified organic producers. Literature Summary Farm profit is a function of commodity prices, yields, farm size, the proportion of land producing a marketable commodity, payments from government programs, the mix of inputs used in production, and relative input prices. Previous studies usually have found yields to be lower for organic than conventional farms. Organic commodities, if sold as differentiated organic products, face a different price schedule than do conventionally grown commodities. Researchers often find that organic markets receive premium prices. These organic premiums are highly variable, however, with organic produce selling at a premium in some markets but not in others. Previous research also varies with regard to conclusions about farm size, labor requirements per crop acre, and farm profitability. Many of the previous studies have been based on experimental data rather than practicing farms, and thus may not capture some restraints faced by practicing farmers. Other studies have compared small groups of farmers that are not randomly selected, and thus may not be representative of either organic or conventional farming. Study Description This study uses Ohio data to compare the profitability of organic and conventional agricultural systems. Two producer groups are identified and sampled. Comparisons of various measures are then made between these samples. Since 1988, food commodities produced in Ohio and marketed as “organic” must be certified to be grown organically. Inspection and certification of organic produce is done by the Ohio Ecological Food and Farm Association under authority of the State of Ohio. Organic farmers cannot use petrochemical fertilizers, pesticides, or herbicides. Certification requires that detailed records be maintained for each farm field with all applied inputs identified. Farm production can be certified as organic only after 3 yr with no use of petrochemical inputs. In 1990, 90 Ohio farms were certified to produce organic commodities. All of these farms received mailed questionnaries in December 1990: 71% responded to the survey. The Ohio Farm Household Longitudinal Survey, a scientifically drawn sample of all Ohio farm households, is used to characterize the prevailing farm system. The most recent survey year, 1990, is used in these analyses. Applied Questions How do organic farms compare with conventional farms with respect to input usage, crop yields, and other farm characteristics? Organic agriculture uses a substantially different system of production than that practiced on most Ohio farms. Results of this study suggest that organic farmers received substantial price premiums in 1990. Average commodity price premiums for corn, soybeans, and wheat, respectively, were $1.44, $4.16, and $3.07/bu (Fig. ). Crop yields for organic producers, however, were lower for all reported crops than for the average Ohio farm (Fig. ). As expected, organic farmers had much smaller expenditures for fertilizer and chemical pesticides (Table ). The levels of machinery investment per crop acre were approximately equal for organic and conventional farmers. How does organic and conventional farm profitability differ? Prices received for grain crops. image Organic and conventional yields. image Representative organic and conventional farms were constructed using mean farm sizes, crop mixes, input usages, and so forth. Return to land, fixed investment, and management were then calcualted for each representative farm. Profits were slightly higher for the organic farm. These profits, however, relied upon receipt of premium prices, which were more than sufficient to offset the yield reductions under organic production. Measures of farm input use for organic field crop and OFHLS farms. Certified organic OFHLS Larger than Larger than All crop 275 crop All 275 crop farms acres farms acres Crop acres 181 403 235 672 Per crop acres Chemical pesticides, $ 1.17 0.04 15.81 16.98 Fertilizers, $ 9.88 13.33 29.05 28.71 Depreciation, $ 35.76 25.90 73.68 31.32 Total machinery 355.12 232.76 651.85 226.15 investment, $ Operator labor, $ 15.70 5.55 33.20 5.25