Study released on organic cost of production

New cost of production analysis for organic crops and livestock should help farmers benchmark their operations against others in the sector.

The Organic Council of Ontario (OCO) in late April published cost of production (COP) analyses for dairy, salad greens, field crops and pastured poultry, in a project funded through the federal/provincial Canadian Agricultural Partnership.

Why it matters: Most organic producers must either rely on conventional-focused models that fail to incorporate key aspects of organic production, or not use COP modelling at all.

“I think most people know that making a living being a farmer is no easy task and that to be successful you need to manage risk,” said OCO Communications and Membership Manager Stuart Oke in a news release. “Having reliable data that can act as a foundation for a new enterprise is a game-changer.”

Each analysis draws on 2018 financial data provided by a group of organic farms, includes a discussion of trends and points out factors specific to organic production of the particular commodity.

Each also includes a simulator into which organic producers or those considering transition to organics can plug their own farm’s plans and projections.

The Ontario Ministry of Agriculture, Food and Rural Affairs (OMAFRA) has a COP model for organic field crops, but some deficiencies in that model are identified in the new OCO report. 

Specifically, certified organic seed is seen as ubiquitous in the OMAFRA model but, in reality, a significant number of growers rely instead on farm-saved seed or untreated conventional seed. The cost for hand weeding of various crops is also cited by OMAFRA, but OCO found that no participating farms used hand weeding except in emergencies.

Dairy Farmers of Ontario and the Organic Meadow cooperative, meanwhile, both conducted organic-focused COP analyses. Results from those studies were not made public due to the small number of participating farms, although they were made available to OCO report author Dirk Brunsveld.

Brunsveld, a former banker who has since returned to take over his family’s organic dairy farm near Hamilton, told Farmtario “I’ve probably read hundreds of these (COP studies) but this is the first one I’ve conducted. I’m kind of obsessive about this.”

Examples of generally accepted COP principals that don’t necessarily apply in organics, as cited in the new models, include:

  • Opportunity cost lost when organic grains are fed on-farm to livestock: “If a farmer grows their own grain for their cattle,” writes Brunsveld, “the true market value (for which they could sell the organic crop) is not being accurately represented. Essentially, the value of the crop enterprise is artificially subsidizing the dairy operation via below-market grain costs.”
  • Dairy organic incentive days: The organic premium received over and above the conventional milk price varies by month depending on organic milk utilization, says Brunsveld. “During summer months, the premium often drops due to poorer fluid milk utilization (as children are not in school). Therefore, producers with increased production over the summer months tended to have a lower overall gross return per litre of milk sold.”
  • Assigning labour costs on a diversified farm: Organic operations, to a greater degree than on the conventional side, tend to incorporate multiple farming enterprises. The co-authors of the pastured poultry analysis, Thorsten Arnold and Brenda Hsueh of the Grey Bruce Centre for Agroecology write that “farmers could not clearly attribute time to moving chickens because often, other chores were carried out at the same time.”
  • Fertility benefit of complex rotations: Arnold and Hsueh found that raising pastured poultry wasn’t always perceived as a profit-generator within the fiscal year, but rather “as a means to rejuvenate and improve pasture quality as part of their larger livestock operation.” 
  • “Scavenging scenarios” for capital costs: The pastured poultry model acknowledges that, without exception in their COP study, not all materials for the mobile poultry housing were purchased new. Many, or in some cases almost all, of the materials, were instead “scavenged” from around the farm.

In analyzing the financial data from approximately 30 farms participating across the four commodities, OCO’s researchers determined some interesting trends.

Field crops report author Tom Manley writes that “large successful farms keep their crop rotation simple – three or four years with corn, soybeans, cereals, and cover crops. Despite the perceived agronomic benefits of niche crops such as buckwheat, oats, peas, hay, large farms go for…high-yielding, high-revenue crops, and short-term cover crops. The niche crops simply do not have the yield and the revenue potential to justify their place in the rotation.”

Arnold and Hsueh, meanwhile, discovered that paying the fee for organic inspection and carrying out the onerous record-keeping required for organic certification isn’t often worth it when it comes to pastured poultry – which, due to its place within Chicken Farmers of Ontario’s Artisanal production program is, by its nature, small in scale. Several participants aren’t certified, “however all of them used organic feed, and otherwise no major deviation from organic practices were identified,” they write. 

Along with determining that investments in larger or higher-quality greenhouse technology reduce energy costs and labour costs, salad greens study author David Cohlmeyer discovered that, over the long term, it’s less costly to provide above-average wages to paid employees than it is to rely on “free intern” labour. 

“It takes a lot of time each year to hire and train new workers, and.. paying a premium wage for committed local or migrant workers can reduce total labour and management costs by 30 per cent,” he writes. “Higher pay rates for more effective and experienced workers typically resulted in lower labour costs as a percentage of total costs.”

Source: Farmtario.com

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