Developing Financial and Risk Management Tools for Organic Grain Farmers

View the project final report

Commodities

• Agronomic: corn, soybeans, wheat

Practices

• Crop Production: crop improvement and selection, cropping systems, crop rotation, Economic/Financial Decision Making
• Education and Training: decision support system, extension
• Farm Business Management: agricultural finance, budgets/cost and returns, business planning, feasibility study, financial management, risk management
• Production Systems: organic agriculture, organic certification

This project will develop a dynamic financial calculator using enterprise budgets and financial indicators for transitioning and certified organic grain farmers. This software will be hosted online at the Horticulture Business of Purdue University, and available free of charge. Software can be used by farmers, extension educators, or financial institutions to determine the financial feasibility or profitability of transitioning to organic certification, or adding a new crop into a rotation. The software will be built conducting interviews with farmers to test enterprise budgets from the Center of Commercial Agriculture and determine the actual enterprise budgets faced by transitioning and certified grain farmers. These enterprise budgets will be used for building the software. Software outputs will be measures of financial health and efficiency, including net present value and benefit cost ratios, serving as risk measures that can be used to determine if certification, addition of a new crop in a rotation, or operational expansion are feasible and profitable. Additional calculations presented by the software will include profit per acre, and fixed and variable costs per acre which can be used to determine how the operation is performing relative to industry benchmarks found by the enterprise budgets. Farmers were given the opportunity to test and provide feedback on the calculator via Zoom.  This was an alteration to the original plans of hosting workshops that was necessitated by the COVID outbreak and the resignation of Purdue's Organic Extension Specialist.  The calculator includes an instruction page that farmers/extension educators/other users will see when first opening the calculator.  The purpose of this instruction page is to allow the calculator to be a stand alone item without the need of additional guidebooks or resources.  By using this software, farmers can more successfully transition to certification and maintain certification in the long-term, increasing the adoption rate of sustainable agricultural practices. Ultimately, this project will assist the adoption of organic certification and provide information to the financial decision-making processes of grain farmers in the North Central Region (NCR). Increased adoption of organic practices will improve the adoption of sustainable agricultural practices in the NCR.

We will generate a financial tool for grain farmers, extension educators, and financial institutions to assess financial feasibility of transitioning and certified organic grains. This software will be dynamic, allowing for assessment of the profitability and financial feasibility of crops rotations over time. This tool could result in improved record keeping and long-term sustainability for organic grain farmers. Farmers using the tool can plan and budget growth and expansion of grain operations. In order to build the software, enterprise budgets of organic, transitioning, and conventional crop rotations will be utilized.  These organic enterprise budgets were built by the Purdue Center for Commercial Agriculture and made freely available to farmers in late 2020.  The tool built in the present project is intended to work alongside the enterprise budgets already available to provide farmers a more comprehensive understanding of their financial horizon.  This project builds upon our current NCR-­SARE grant (LNC17-397), in which we are analyzing the demand for organic grains, and grain buyer preferences and perceptions.

The tool would also allow grain farmers to assess a production goal and analyze their financial efficiency in meeting that goal. Being able to use this software to easily assess and monitor cash flow, return on investment/equity, variable costs, and revenue per acre can allow farmers to track yearly performance and identify areas of improvement and expansion in their operations. Increasing production of domestic organic grains could soften the dependency on imported grains and assure the economic sustainability of the organic industry.

This project is anticipated to attract novel farmers to organic production and reduce decertification of organic operations. Farmers will be able to access new market opportunities for other grains utilized in organic crop rotations, like small grains. Increased adoption of organic practices will improve the adoption of sustainable agricultural practices in the NCR.