Be Careful of Organic Demand
For several years, farmers who grew organic crops were able to generate higher returns than non-organic farmers. However, with the current recession, those days may be coming to an end.
Organic farmers are required to meet tough standards to have their crops and food products branded as organic. Generally, they are not able to use any commercial fertilizers or pesticides and in the cash of milk or animals, all of the feed that is used in the operation must be also organic.
For many years, the demand by discerning consumers for organic food created a premium pricing for these growers and farmers. I know many farmers were able to get a two or three times premium for their organic products over comparable non-organic products. Any time that you have this type of pricing differences, two things can happen that will negatively affect the price. Either demand can decrease or supply can increase.
For most organic farmers in today’s environment, both things are happening. The recession has decreased the demand for these products due to the large differences in prices. The old consumer that might have been willing to buy a gallon of organic milk for $6 or more would rather buy non-organic for $3 or less now.
Also, many new farmers are coming on-line with organic products. This is causing there to be a large increase in supply along with an offsetting decrease in demand will cause many organic food product pricing to diminish rapidly. Also, many of the input costs for organic farmers are continuing to increase while their prices drop.
For example, organic dairy farmers have probably seen their price for their product drop by almost 50% over the last year or so, while the cost of buying a bushel of organic corn to feed their cows is still around $10, which over twice what a conventional dairy would pay for corn.
If you are thinking about changing over to organic farming in the near future, please make sure to determine how these factors will effect your operations.
Paul Neiffer is a certified public accountant and business advisor specializing in income taxation, accounting services, and succession planning for farmers and agribusiness processors. Paul is a principal with CliftonLarsonAllen in Walla Walla, Washington, as well as a regular speaker at national conferences and contributor at agweb.com. Raised on a farm in central Washington, he has been immersed in the ag industry his entire life, including the last 30 years professionally. Paul and his wife purchase an 180 acre ranch in 2016 and enjoy keeping it full of animals.
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