Developing Financial and Risk Management Tools for Organic Grain Farmers

Project Overview

GNC18-262
Project Type: Graduate Student
Funds awarded in 2018: $12,000.00
Projected End Date: 10/30/2021
Grant Recipient: Purdue University
Region: North Central
State: Indiana
Graduate Student:
Faculty Advisor:
Brady Brewer
Purdue University
Faculty Advisor:
Nathan Delay
Purdue University

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

    Proposal abstract:

    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, internal rate of return, benefit cost ratios, and risk that can be used to determine 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, return on investment or equity, 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. Two workshops will be held for farmers and extension educators to demonstrate software use and explain how to interpret outputs. A guidebook containing the same information will be published. Findings from this project will be published in a peer-reviewed journal and presented at two regional conferences. 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.

    Project objectives from proposal:

    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. 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. 

    Any opinions, findings, conclusions, or recommendations expressed in this publication are those of the author(s) and do not necessarily reflect the view of the U.S. Department of Agriculture or SARE.