Making the transition…
Craig Chase, Field Specialist
Farm & Ag Business Management

Profitability of Row Crop Systems
• The debate is over…organic systems offer the classic economic risk/reward opportunity.
• Organic systems, if managed properly, are more profitable per acre (on average) than conventional farms in Iowa.
• If your net farm income goal is $40,000 per year, an Iowa organic farm can reach this goal (on average) with less than 200 acres versus 2,000 acres (or more) for the conventional corn-soybean farm.

So then the main question becomes…
• How to transition - for row crops the following questions related to economics should be answered:
– What’s the optimum rotation and order of crops (which crop to transition first)?
– Whole farm or field-by-field transition?
– Weed management techniques; which combination of mechanical field operations?

Economic Transition Questions – cont’d
– Machinery implements; purchase, lease or custom hire for implements not already owned?
– Manure/compost source – should livestock be integrated into the whole farm system, which type, and if not, where should manure be sourced?
– Note: the economic evaluation should be focused on both individual enterprises and the entire farming operation.

Economic Evaluation – Is it Working?
• Individual enterprise evaluation
– Develop enterprise budgets for each crop in the rotation (both during and after the transition).
– Enterprise budgets show where the weaknesses and strengths are of the rotation and where production changes can be made.
• Whole farm evaluation
– Combine all enterprise budgets including livestock, if applicable, to determine whole-farm profitability.

Economic Evaluation – Is it Working?
• So what happened (comparison of alternative strategies)?
– How profitable?
– What risks were involved?
– Which transition made more sense to you?

Transitioning into higher profitability…
Craig Chase, Field Specialist
Farm & Ag Business Management

Profitability of Vegetable Crop Systems
• Organic systems again offer the classic economic risk/reward opportunity.
• The key to profitability with vegetable crop systems, however, is more focused on marketing outlets and pricing than rotation, weed management, and machinery acquisition.
• In addition, an understanding of profit margins (e.g., net income ratio) is necessary to price product effectively.

Vegetable Planning Questions
• How many acres do I need in production to meet my planning goals?
• What is my “best” market?
• What price do I sell my products at?
• What is my net income ratio and gross sales per acre?
• These questions are important because organic vegetable production is a highly labor-intensive business.

How big?
• You want to grow vegetables and want to have a net income of $30,000 per year.
• You estimate your gross revenue per acre will be $15,000 per acre.
• You want to achieve a net income ratio of
30%.
• You will need to produce vegetables on 6.7 acres ($30,000/30% = $100,000 sales /
$15,000 / acre = 6.7 acres.

Pricing?
• You need to know your cost of producing and marketing your products.
• Assume your cost to produce and market your tomatoes is $2 per pound.
• You want to achieve a net income ratio
(or profit margin) of 30%.
• You need to price your tomatoes at
$2.86 per pound ($2/.7).

Bottom Line
• My view: To be profitable in the organic vegetable business you need to understanding profit margins (both revenues and costs) and price accordingly.

Economic Evaluation – Is it Working?
• Individual enterprise evaluation
– For producers who grow a large number of different products. Develop budgets for those products that contribute the most to business goals.
– Enterprise budgets can be used for pricing, as well as evaluating changes to production practices and product mix.

Economic Evaluation – Is it Working?
• In addition to crop enterprise budgets, a detailed look at marketing costs are necessary.
• Marketing costs (those costs associated with the marketing and delivery of the product from the farm to the customer) can be much greater than the cost of production.

Whole-Farm Records
• What if you don’t have records at the enterprise level?
• Economic evaluations regarding pricing and marketing outlets can be made using wholefarm records if you have a few enterprises.

Resources
• Agricultural Decision Maker
(http://www.extension.iastate.edu/agdm/authors/cchase.html).
– Organic Crop Production Enterprise Budgets
– Making the Transition from Conventional to
Organic
– Developing Enterprise Budgets
– Using Enterprise Budgets to Make Decisions
– Using Financial and Production Records to Make
Decisions

Resources
• Agricultural Decision Maker
( http://www.extension.iastate.edu/agdm/authors/cchase.html
).
– Iowa Vegetable Production Budgets
– Pricing for Profit
– Price Determination for CSA Share Boxes

Resources
• Building a Sustainable Business http://www.misa.umn.edu/vd/bizplan.html
• ATTRA http://www.attra.org/
• Ag Marketing Resource Center http://www.agmrc.org/
• And… someone that has gone through the process already

Questions…..
Any questions or comments?
Thank You for This Opportunity!
Craig A. Chase
Farm Management-Local Food Systems and Alternative Enterprises
312 Westbrook Lane
Ames, IA 50014
(319) 238-2997 cchase@iastate.edu
http://www.extension.iastate.edu/agdm/fieldstaff/cchase.html