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Decertification the only option? Facing current financial challenges
Times are tough, demand is down and costs are higher, but is de-certification the way out? Are organic farms really performing badly financially? The reality is often different as a new financial report from the Soil Association and ORC (in preparation) and an in-depth look at arable and dairy costs show. (Organised by Soil Association)
Simon Crichton (Triodos Bank): Chair
The session wanted to provide some answers in tough times. The demand for organic is down overall and costs are increasing, so some producers are asking the question whether the grass is greener on the other side.
The first presentation from Nic Lampkin (ORC) showed data from a new report due to be published by the Soil Association and ORC, based on trends for farm income comparing organic with conventional over the last five years. He concluded that for most types organic farms are performing as well as comparable conventional ones. For cropping enterprises the premiums are clearly very important. This is also true for livestock, but with the conventional price floor higher than it was, organic farmers may well cover their costs and judging the comparable performance of both systems only based in the premium over conventional is not a sound judgement.
William Waterfield, a farm consultant, is regularly confronted with the question in the arable sector. Organic arable farmers that aim to increase profit margins effectively have two options: reducing costs or increasing yield.
- Reducing costs - the variable costs are clearly lower on organic farms, the more difficult to control labour and machinery costs tend to be higher on organic farms.
- Yield increases - William compared aiming for yield increase with a blind date, you do not know what will happen and there are no obvious easy answers.
Variety selection and mixtures; bi-cropping; drilling dates and seed rates; fertility and micro-nutrients but also agro-forestry all could make a difference and should be explored. William cautioned against seeing decertification as the easy option, because of the need for a technical catch-up, increasing costs of variable inputs.
Geoffrey Sayers(Carswell Farms and Well Hung Meat Company) runs organic dairy enterprises on five sites with share farmers in the South West. The main focus is on producing milk from pasture in a New Zealand style system with a cross bred herd that include Jersey and Swedish red. He produces a relatively high solid content which at present is not rewarded by his milk buyer.
He presented us with a back of the envelope calculation comparing his current financial returns with a scenario that uses nitrogen which would increase dry mater yield from 10 to 14 t/ha, which would allow a higher stocking density of 2 rather than the present 1.5 LU/ha. This means more cows and more milk output. He assumed that he could achieve the same milk premium by switching to a conventional cheese maker, which would overall lead to an increase in profit
The downside of decertification is that meat consumers, tourists and educational visits prefer the farms to be organic. The discussion highlighted that the calculation clearly had some gaps.
Maintaining and attracting good staff is clearly a major concern for such as business. This is more difficult when similar jobs on conventional farms appear to be well rewarded.The overall discussion covered the end of milk quotas, the pricing system in the dairy sector and the question of organic yields, but it did not provide any easy answers. The chairman Simon Critchon (Triodos Bank) concluded that there are likely to be some farms which at present could earn a bit more if farmed conventionally and some other which are clearly better off organic. There also is a large number in the middle where good management is likely to be the key to run the business profitable. Those that decertify, however, might need to change their bank.
Speaker presentations and abstracts
For more than 15 years, Defra has funded the collection of data on organic farm incomes, published annually as a report by Aberystwyth University, and used to support the costings data published in the Organic Farm Management Handbook. We have analysed the trends for the last five years as part of a report to be published by the Soil Association and ORC in Spring 2013. These results show that in general, organic farms remain competitive with similar conventional farms, and that incomes have held up better than might have been expected given the tough market conditions following the recession. However, some particular sectors are facing real difficulties. Price premiums alone do not tell the full story and should not form the basis of a decision to stay organic or revert back to conventional.
William Waterfield (Consultant): Arable input costs (210KB)
The grass is not always greener on the other side of the fence. Increased headline prices in the conventional arable sector should not be confused with improved profitability or that the conventional sector offers better prospects of improved profitability. Improving the financial performance of organic arable systems requires growers to develop robust systems that can maintain levels of fertility and crop yield and hence profitability. The paper will examine key elements in the cost structure on organic farmers and highlight ways in which growers can improve their profitability. The impact of yield will be considered as a means of improving returns for organic farms. The prospects for input costs in the conventional sector will also be considered.
Geoffrey Sayers (Carswell Farms/Well Hung Meat): Financial realities on the farm
Questioning the economics of organic production has been at the heart of my expansion over the past 10 years. Despite a deep belief that organic production is better in terms of animal health and natural productivity of land and livestock and a feeling that it delivers a better product to my consumer I am a businessman and must ensure I maintain a profitable farming business. Each time I expand I ask myself whether I should convert the farm in question, and to date I have said yes. However, in the current economic climate the gap is closing meaning that many farmers either discount the thought of conversion or are dropping out. But I feel that there is still a strong economic case for production with consumers and some supermarkets coming back to organic products and it is some of the more subtle parts of the production system that must not be overlooked when choosing the right path for your farming business. So I factor in the longevity of my cows, meaning lower replacement costs. The ability to produce milk from grass, lowering my exposure to external feed costs which are outside of my control. As well as improved animal health and as such lower vets bills. So whilst it is getting harder financially to stay with my belief that organic production is better for the environment to date, I have always chosen to keep my whole herd organic.