A whole-farm profitability analysis of organic and conventional cropping systems

Previous studies have found that organic crop production in the midwestern United States can be more profitable than conventional crop production. However, these studies have failed to consider potential differences in farm size between the two systems. If an organic crop rotation cannot be managed on as large an area as a conventional rotation given the same resources, a per-hectare profitability advantage for the organic system would not necessarily translate into a whole-farm profitability advantage. This paper uses management data from a long-term cropping systems trial to estimate the maximum farm size for a conventional corn-soybean rotation and an organic corn-soybean-oat/alfalfa-alfalfa rotation, subject to appropriate yield penalties for management delays and three different machinery complement scenarios. Using these farm size results we estimate whole-farm net returns for each system and then compare the estimated distributions of net returns using stochastic dominance criteria. The results of the farm size model show that under the two largest machinery complement scenarios the conventional corn-soybean rotation can be managed on a larger area than the organic rotation, given equal labor endowments. The smallest machinery complement scenario results in equal farm sizes for both systems. Estimated machinery costs per hectare are lower and whole-farm net returns are higher for larger farms under both cropping systems. However, for each machinery complement scenario, average whole-farm net returns are higher for the organic system than the conventional system, despite the larger farm size under the conventional system for the two largest machinery complements. Stochastic dominance analysis for a baseline scenario with full organic price premiums and no reductions in observed organic yields indicates that risk averse farmers would prefer the organic rotation over the conventional rotation for each of the three machinery complements. Sensitivity analysis shows that reductions in organic yields from those achieved in the experimental trial and reductions in price premiums received for organic crops make the conventional rotation more competitive but still not dominant for all risk averse producers. (C) 2013 Elsevier Ltd. All rights reserved.