Costs of Products

I was part of an interesting conversation today about the prices of Organic Food versus Other Food. I’m going to attempt to break it down so non-producing people can understand.

Each farm does things differently, each step costing a different amount. In a traditional business, we call this production. In farming, the consumer associates that word with assembly lines of animals or parcels of land providing goods at the expense of those who care for it or them.

As a farmer, each thing I do has a cost associated with it. We call this the cost of production. It covers everything from seeds, fertilizers, wages, marketing and feed. It also covers taxes and fuels and every other thing in between. Businesses call this overhead. Small farms are like those boutique shops where everything is done on a smaller scale and products are limited. Larger farms are like chain stores where they get discounts for what we call “purchasing power.”

With these comparisons, just why is Organic more expensive if it doesn’t involve costly fertilizers and spray chemicals? It’s actually rather simple to do the math. For example purposes, I am going to use the terminology of convention and organic with no line drawn in the sand between the two. I am not a supporter of either system for various reasons.

Let’s take a look at things that are the same for both systems:

1. Land taxes – Yes they vary from town to town, county to county and state to state but each acre of land has an associated cost of using that land.

2. Insurance – It doesn’t matter what type of farming you do. Building insurance, farm machinery insurance and auto insurance all have fees associated.

3. Electricity Consumed – Unless a farm is providing its own electricity through wind, solar or capturing methane gases, there is always a cost for fences, lights, milking pumps, water, etc.

Here’s where things start to drastically vary:

1. A Consolidated Feeding Operation (CAFO) will utilize more harvested and stored materials while Organic utilize more pasture based systems.

  • CAFO have high costs associated with planting, maintaining and harvesting materials. Organic has high costs for fencing and electricity to charge the fence.
  • Most farms purchase supplements grains. Let’s say Conventional or GMO corn is selling for $4.25 per bushel provided, Organic Corn for feed is selling for $10.00 per bushel. Most Organic farms do not have the “buying power” discussed about to play the market futures for corn commodities either, which results in slightly lower price structures. On these market based reports, Organic corn for feed costs 242% more.
  • On CAFO operations, the overhead costs of lights are at a lower input rate on a per head basis. If you are comparing at 100 cow dairy to a 1,000 cow dairy the prices to provide lights, heating/cooling, water and other associated costs are normally close to the same cost per month. So if that monthly bill is $200, it’s a $.50 fee per cow on the small dairy and $.20 fee per cow of the larger farm. It works the same with fuel to provide feed.

2. It isn’t that Organic farms don’t use fertilizers, sprays or chemicals. It’s that what can be used is limited. With any other “specialty” market, we expect to pay higher prices for these goods. You can do some research via the internet and discover the differences in pricing structures and what’s allowed for organics according to the USDA.

As you can see, Organic is in my view-point a much costly endeavour due to feed costs alone. Organic farms also deal with different commodity brokers or do much of their own marketing on smaller farms. No answer is ever simple and it’s difficult to express the real differences in costs. Again, this is another reason I suggest you purchase from a farm you can talk too. Boxed goods on the shelf, unfortunately, do not tell us the real story behind the scene.

If there is anyone who would like to sit down and discuss our pricing structures, we always welcome you to come look over the books. Here on our farm, we do not fit into the brackets of conventional or organic. We base our choices on economic, environmental and animal benefits. The system we use isn’t a marketing tool, but instead a sound decision based off those three aspects. I will keep all opinions on both of these productions to myself today. If you want to know more, feel free to comment or send us a message via twitter or Facebook.

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s