How profitable is organic cereal production?

With significant price changes in the last 7 months the greater profitability of organic grain production compared to conventional systems has been questioned. For several years it has been generally understood that organic cereal production provided a better return because of the greater risk (of a crop failure) taken by the producer.  


However the strength of the conventional market has called into question this assumption and organic producers are questioning whether they should remain organic or return to conventional production.


In order to better understand the dynamic interaction between organic cereal values and conventional cereal and to seek to make a comparison between the two I undertook the following exercise.  To plot the organic feed wheat price a stockless arable producer would require to achieve a similar Gross Margin (GM) to a conventional arable producer.


In order to do this a "typical" stockless arable rotation was required and a "typical" conventional rotation.  The conventional rotation was simple.  OSR>Wheat>Wheat.  The organic rotation is far more variable in practice but for this exercise the following was used.  Wheat>Barley>Beans>Wheat u/s with red clover>Red Clover.


Rising input prices are also a variable over which conventional producers have little control and so these too are brought into the matrix as they have an impact upon the conventional gross margin and so the relative Gross Margins of the two approaches.


So here goes.  What price does organic feed wheat need to be to provide a similar Gross Margin to conventional wheat?

With a conventional wheat price of £190 per tonne and with Ammonium Nitrate at £320 per tonne a price for organic wheat of £345 would be required to give a similar Gross Margin.


However since this analysis was done a couple of weeks ago the cost of nitrogen has increased by perhaps £25 per tonne and the wheat price has slipped (with Russia announcing its resumption of exports).  Perhaps today a price of £322 would be more realistic.


The model also indicated that the machinery costs for the organic rotation was about £50 per ha lower and with an additional £30 per ha in OELS payment a value of about £20 per tonne accrues to an organic rotation.


So perhaps a wheat price of £300 per tonne is approaching a comparable Gross Margin?


So will organic farmers see £300 per tonne this season?  Probably for milling wheat but less likely for feed grains.  Is organic cereal production less profitable than conventional arable farming?  Perhaps slightly, but perhaps not so far away from it as many might think.  


Before rushing out with the Roundup and ringing your certification body think carefully ...

• no organic input has risen £25 per tonne in the last two weeks.
• you've not spend well over £400 per ha on establishing a crop and watching it suffer in this drought
• you're not competing for inputs (nitrogen) in a global market against countries with rapidly growing populations and booming economies.

Organic farming may not be providing the higher returns in has for so long when compared to the current strong conventional market but is perhaps not as far behind as it may appear and is certainly more robust.


A copy of the model used for these calculations is available to Organic Arable members free of charge if they'd like to look at the comparison in more detail for their own farming system.


Price and yield assumptions are shown below 


Conventional Assumptions:

• First wheat yield 9 t/Ha
• second wheat yield 7 t/Ha
• OSP yield 3.5 t/Ha
• OSR valued at £400 per tonne
• TSP costed at £425 per tonne

Organic Assumptions

• First Wheat yield 5 t/Ha
• Second Wheat yield 3.5 t/Ha
• Barley yield 4 t/Ha
• Bean Yield 3.5 t/Ha
• Barley price assumed to move with wheat price and valued at a £15 discount to the wheat price
• Bean price assumed to move with wheat price and valued at a £50 premium