Profitability of Organic Farming Systems

Mr. James McDonnell, Teagasc

Teagasc National Organic Conference 2009

Outline

Conventional v Organic Sources of financial information

NFS EPM Teagasc Budgets

Beef production Rearing systems Non breeding/ other systems

Dairy production Tillage production

Conventional v OrganicWhy?

Government 5% targetSource of new organic participantsOrganic farming systems

Are they difficult to manage?Do they have lower cost of production?Are they more profitable?

How profitable are conventional systems?

Why is Profit important?

The business needs profit to…Pay the manager/ investor ( i.e. YOU)Reinvest in new business assets so that the

business will grow and generate more profit (building up cash is also reinvesting)

Pay back lenders the principal that was borrowed to get the business to its current state

Cattle Systems in Ireland

Cattle rearing systems

Non Breeding / other systems

Cattle Rearing Systems EPM V NFS

-400-200

0200400600800

100012001400

GrossOutputValue

VariableCosts

TotalCosts

NetProfitexcl.

Premia

TotalPremia*

€/h

a

Top 1/3

Average

Bottom 1/3

NFS

€420 / ha difference

Non Breeding / Other Systems - conventional EPM v NFS

-300-100100300500700900

110013001500

GrossOutputValue

VariableCosts

Total Costs Net Profitexcl.

Premia

TotalPremia*

€ / h

a

Top 1/3 Average Bottom 1/3 NFS

€501 / ha difference

Organic V Conventional

-400

-200

0

200

400

600

GrossOutputValue

VariableCosts

GrossMargin

FixedCosts

Net Profitexcl.

Premia

TotalPremia*

€ /

ha

Organic Conventional

€100 / ha difference

Beef Systems

Target Range NFS 2007

Physical

Farm Size ha 19.7 - 84 34.6

Stocking Rate LU/ha 1.3 – 1.4 0.77-1.36 0.5

Financial €/ha

Gross Output Value 1000 346-1061 156

Variable Costs 465 112-582 101

Gross Margin 350 233-479 55

Fixed Costs 200 162-415 139

Net Profit excl. Premia 150 71-131 -84

Total Premia* >325 324-553 517

Organic EPM Results v NFS 2007

Organic Dairy Farming

Comparison with Conventional Winter Milk

E profit monitor results 2008

Winter Milk EPM v Organic Milk EPM

0

10

20

30

40

50

Gross Output Total VC Gross Margin Total FC NM/litre

Cen

t / li

tre

Average c/l Top 10% c/l Organic Milk Median c/l

Winter Milk EPM V Organic EPM(Net Margin / Ha)

€1,708

€2,987

€1,418

0

1000

2000

3000

4000

Average W.M Top 10% W.M Organic Milk Median

€ /

ha

NM/ha

Winter Milk EPM v Organic EPM(Net Margin / Cow)

€790

€1,350

€958

0

200

400

600

800

1000

1200

1400

1600

Average W.M Top 10% W.M Organic Milk Median

NM/cow

Organic Tillage

Suits mixed farms2 operations on most farmsGood marginsCrop rotation critical

Organic Tillage

Description Production Levels

Yield - tonnes/hectare (t/ac) 4.0(1.6) 5(2)

Output at €350 per tonne 1400 1750

Material Inputs €/ha    

Seed (220kg @ €930/tonne) 205 205

Lime 20 20

Machinery hire €/ha total 390.5 393

Organic Scheme payment up to 55 ha * 106 106

Gross Margin per ha (excl SFP) 900.5 1238

Conventional Tillage - 2008

Preliminary resultsGross margin over materials

(seed, spray, fertiliser etc)Winter Barley G.M/Ha €686Winter Wheat G.M/Ha €710

Machinery costs average €300 - 400

Take Home Messages

Beef Huge variations in performanceOrganics more profitable

Milk attractive up to 1.7L.U. per ha

Tillage Excellent margins

Thank you

for your attention