The profitability of organic farms in Minnesota improved in 2010 after a tough year in 2009, according to a new report by the Minnesota Department of Agriculture (MDA). The median organic farmer received an income of $62,463 in 2010, which was more than six times the median income in 2009 and consistent with those in 2007 and 2008.
Likewise, in 2010 the debt repayment capacity of organic farmers bounced back. In 2009 Minnesota organic farms only made 62 cents in profits to cover each dollar of scheduled debt payments, while in 2010 Minnesota organic farms made 1.68 dollars to cover every dollar of debt payments. To learn more about what happened from 2009 to 2010, I interviewed one of the study’s authors, Dale Nordquist. “In general the organic producers in this group have been pretty conservative, keeping their debt under control. But 2009 did put some of them behind the eight-ball,” said Nordquist, who serves as Associate Director of the Center for Farm Financial Management at the University of Minnesota. “Some may have had to refinance short-term debt onto longer terms, which would hurt their debt coverage.”
According to the report’s findings, both organic and conventional farms struggled more in 2009 than in other years. According to Nordquist, most of these problems were in the livestock area, with very low prices for pork and milk. The economy also played a role, as people bought less of the more expensive meats and organic products, Nordquist said.
Overall, Minnesota’s conventional farms had higher profits in 2010 than Minnesota-based organic farms. Why the difference in profitability? Nordquist stated that much of the reason for the relative success of conventional farms compared to organic operations is that, on average, they are larger than organic farms. “Conventional producers can focus on keeping costs down while they increase volume,” said Nordquist. “That is harder to do in organic production, so organic producers have to focus on efficiency and margin.”
When asked if there were any additional factors that currently gave conventional farms an edge, Nordquist cited record-high prices for conventional corn and soybeans over the past few years. “That is the primary factor, along with the fact that livestock prices rebounded from their lows in 2009, particularly milk and pork,” said Nordquist. “Also the price of crop inputs–fertilizer in particular–were lower in 2010. It will be hard for conventional crop producers to maintain this level of profitability because eventually costs, particularly land costs, will catch up with the increased prices.”
Although conventional farms in the study were more profitable on average than the organic farms, organic farms in Minnesota are steadily improving their profitability. Farmers managed to rebound from a challenging 2009 with a good year in 2010, and hope to see another good year in 2011.