Organic Growth

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Strong consumer demand, spectacular premiums and tightening supplies have some conventional farmers flirting with the idea of switching some acres into organic production. The required three-year land ‘cleanse’ and ensuing production challenges will be hard enough — but can they make the numbers work?

Jason Charles is not your typical organic farmer.

A commodities trader with Land O’Lakes Inc. in Minneapolis by day, Charles ‘moon-lights’ as co-manager and head of marketing for his family’s 12,000-acre organic grain farm in southeast Saskatchewan.

It’s a perfect fit. His marketing savvy allows Charles to negotiate lucrative contracts for the farm’s organic production while establishing strategic relationships with some of North America’s top organic buyers.

And as a family-run venture that’s been sharpening its skills in organic farming since converting in 1993, Charles has helped grow this operation into one of the largest organic farms in Canada.

“It’s a niche environment. You develop a market and buyers through experience and get to know these folks,” says Charles. “It’s been good for us — and, given our size and magnitude, they can come to us and make a big dent in what they need for the year.”

On the production side, Charles says the years spent fine-tuning their organic expertise has paid off.

“We don’t see much of a yield drag,” says Charles, anticipating a 40 bushel-an-acre organic wheat harvest this year, weather permitting through the balance of the crop year. “There’s definitely a small yield drag but this gap is more than compensated for in chemical and fertilizer savings.”

Indeed, the amiable 39-year-old senior global trading manager for Land O’Lakes’ Purina Animal Nutrition has his bases covered.

While Charles may not fit the traditional stereotype of an organic farmer, he may well represent the future success of this niche sector.

Prices for organic grains and oilseeds are at record highs — fetching three times that of generic crops, on average — supplies are increasingly tight and demand shows no sign of easing off.

If they can make it through the transitionary three years required to gain certification and then scale up, large-scale organic farming may be about to take off.

We have Big Ag and Big Data, why not Big Organic?

Organic Opportunities

Several key trends are working together to form a ‘perfect storm’ that could drive a growing number of Prairie acres into organic production.

First, interest among consumers in what they’re eating and how it is produced continues to grow. Organic food is marketed as healthier, naturally produced and more wholesome — and consumers are increasingly opting for this choice. (See table on next page)

Second, supplies are increasingly tight. “We have mills, organic produce companies and retailers calling us a year in advance to lock in supply,” notes Charles.

The problem is a lack of growers. Organic grain production in Canada is still feeling the effects of the global financial crisis in 2008, after which 40 percent of organic producers, primarily in Saskatchewan and Manitoba, exited the industry.

“The year 2008 was a banner one for organic prices, and then right after that the recession hit for three years,” says Laura Telford, business development specialist responsible for the organic sector with Manitoba Agriculture. “During that period there were a lot of organic producers who did not sell a single thing out of their bins.”

Meanwhile, buyers who had stocked up on organic grains in 2008 were caught with an embarrassment of riches they had to discount in order to move.

When demand recovered and land could not quickly be converted, supplies tightened even further.

At the same time, generic grain prices were on the rising, taking a bite out of the organic premium and further inducing former organic growers to stick to conventional farming.

Now, as older organic growers retire and escalat­ing land prices prevent new entrants from starting up, grain supplies may tighten further. Many grow­ers report that buyers are sweetening the deal by offering long-term contracts and incentives to en­tice growers to transition to organic.

Third, prices are hovering at record highs.

Organic grain is priced independently, negoti­ated between growers and buyers in response to the forces of supply and demand, and the growers’ ability to secure a premium for their particular product.

New crop organic spring wheat currently fetches up to $22 a bushel — that’s up from $13.24 in 2008, according to USDA statistics, and a sharp contrast from the $4.50 a bushel its generic sister is pulling in at the elevator.

Buyers are currently paying around $18 for organic peas and organic brown flax has been selling for around $35 a bushel — but has gone as high as $50 — compared to generic flax at $14 a bushel, says Charles.

Saskatoon-based certification organization Pro- Cert Organic Services Ltd. forecasts organic grains to command prices two to three times that of conventional grains in 2014, and some producers say it could be higher.

“You’re looking at three to four times the value with an organic product than there is in the conventional market,” says Marc Loiselle, a long-time organic grain grower and co-owner of Loiselle Organic Family Farm in Vonda, Saskatchewan. “There’s definitely an incentive for people to get involved.”

And they are. Organic grain acreage in Canada has increased 31.2 per cent over the past decade, from 549,091 acres in 2003 to 720,759 acres in 2012, according to the most recent figures from Manitoba Agriculture, Food & Rural Initiatives’

Organic Growth 01 - Table

Food Commercialization & Marketing Knowledge Centre in Portage la Prairie, Manitoba.

Amid this bullish environment, some conventional producers — especially those still waiting to sell last year’s crop amid the recent grain transportation backlog — are wondering about making the switch.

“What we’re seeing now is a lot of tire-kicking from the conventional producers,” says Manitoba Agriculture’s Telford. “We’re going to see more farmers transition this year if the economic situation stays stable.”

According to Becky Lipton, the executive director of Organic Alberta, grower membership typically rises by 10 to 20 per cent each year. With about 350 grower members, that means 20 to 40 new producers, of which more than half grow grain (the remainder produces everything from vegetables to livestock).

With a solid market in place, producers must then consider production challenges associated with organic farming.

Going Organic

Organic farming experts advise producers to do their homework before making the switch.

First, they have to plan for the three-year period with no synthetic inputs that is required for certification.

“You can’t use so much as dandelion killer in your flower beds, and they check into drift from other farms,” Charles notes. “You really don’t grow much for three years so you can end up eating a lot of pork and beans. Not everybody has the staying power for that.”

It’s certainly not a short-term commitment, says Becky Lipton of Organic Alberta.

“You will not have the cost of your herbicides and pesticides, but it tends to be slightly more management [intensive],” she says. “It’s really a lot more involvement in terms of your production practices.”

Andy Hammermeister, director of the Organic Agriculture Centre of Canada and an assistant professor with the Dalhousie University Faculty of Agriculture in Truro, Nova Scotia, says organic agriculture may be perceived as low-impact — but it isn’t necessarily low-cost.

While the latest figures from Pro-Cert indicate production costs in most soil zones will be less than half that of conventional crops this season, Hammermeister says this doesn’t guarantee healthy profits.

“The key to organic grain production is maintaining soil fertility while controlling weeds,” he says. “We can’t just be continually taking out soil nutrients without putting anything back in.”

Proper rotations, with alternate fallow years and the odd manure application are the organic farmer’s main tools when it comes to restoring nutrients such as nitrogen to the soil.

“A lot of farms haven’t done a good job on rotations and providing good conditions for growing organic crops,” says Ian Cushon, of Moose Creek Organic Farm Inc. in Oxbow, Saskatchewan. “Some of those farms have been the ones that have struggled the most.”

Farms that focus on maintaining the health of their fields have a greater chance of seeing a healthy balance sheet, advises Cushon.

“Use green manure soil-building crops in your fallow year,” he says. “Start building on the strengths of alfalfa and forages, if possible.”

Moose Creek has 3,600 cultivated acres growing 10 crops, a mix that’s broad enough to hedge against weather and economic uncertainties. Alfalfa is the foundation, nourishing the soil while contributing to suppression of perennial weeds such as Canada thistle and quackgrass.

Alfalfa is followed by a year of fallow, then hemp or a cereal crop. Next, he grows a pulse crop, fixing nitrogen, and if weed pressure isn’t too great, flax follows. Then it’s back to alfalfa, which may have been inter-seeded with the lentils.

“Typically, a lot of organic farmers would have one third or a half of their acres in fallow, and there’s a cost to doing that in terms of the amount of tillage that’s required,” he explains. “Alfalfa is really a fallow without all the diesel and machinery inputs. And then when it comes out of alfalfa it’s very, very productive for several years, so I make it back.”

Charles concurs. “The biggest challenge is controlling weeds — yellow mustard, for example, is crazy bad. If we have land with too much of it we’ll plant it to alfalfa. That will kill every weed in the ground by year two and meantime you’re still producing a crop off of it.”

His farm produces from 150,000 to 175,000 bushels of some combination of organic brown flax, peas, spring and durum wheat and alfalfa annually.

The Charles’ typically don’t use any biologicals on their land, aside from cattle manure on a half-section a year.

All growers interviewed for this story agree that when it comes to the economics of organics, bigger is better.

“Smaller farms, because of the economic needs, would find it difficult to tie up large amounts of acres in alfalfa unless they have livestock in the rotation,” says Cushon. “Once you get to a certain size you can tie up more acres in soil building and remain an economically viable unit.”

A larger farm typically also supports greater capital investment in farm machinery and labour. Like all large, successful farm operations, labour has become a key component of viable organic farming. Some producers aren’t selling their crop in bulk. Instead, they’re managing smaller orders governed by individual contractors.

Loiselle says that growing demand both in nearby Saskatoon and further afield in Quebec and B.C. keeps him busy managing more, smaller orders.

“Roughly 75 per cent of what we would grow 20 years ago or 15 years ago would be going directly into international markets, now we’re looking at more like 75, 80 per cent staying within Canada,” he says. “We’re targeting and we’re getting interest from the national bakers, and that in a sense has changed the way we’re doing our marketing.”

Market Demand Remains Strong

Canada is now the fourth-largest market for organic food, with sales in 2012 of $2.7 billion, Telford says, lagging the U.S. ($29 billion), Germany ($9 billion) and France ($5.1 billion).

Sales in Canada have grown by five times since 2002, creating opportunities for off-farm buyers and processors, as well as opening up value-add opportunities for growers.

To capture this lucrative market, organic farmers have to pay as much attention to marketing and leveraging business opportunities such as value-add as they do to soil nutrition, says one organic expert.

Organic Growth 02 - Graph

 

 

“In my experience, the most successful organic farmers have been farmers who have largely processed the product on their farm,” says Mike Dolinski, the former provincial organic specialist with Alberta Agriculture, who is now a Senior Agri-Coach with Agri-Trend Agrology Inc. “If you are going to go into organic farming, marketing is key. If you don’t have a chain that you can sell your product into, you run a risk of having product with no home.”

Regardless of the philosophical or ethical beliefs, producers may have about the way they’re producing grain, at the end of the day they’re serving the buyer.

Organic growers tend to fall into two camps, Dolinski says — they first do it because they believe that organic production is better for consumers and better for the land; the second group may concur, but they believe organic, if done right, can be more profitable than conventional production.

“I’ve run into both,” he says. “But the consumer is always right. If the consumer believes that he’s buying a product that’s healthier for him and his family, and can afford it, he’s right.”

Ultimately, the number of growers who shift to organic production will be determined by grain prices — organic and generic, says Charles.

Many organic farmers who exited the industry after 2008 did not return because prices for generic crops climbed, narrowing the gap. “A lot of those producers were under 5,000 acres and they figured, why do this organic thing and deal with weeds when I can go back to generic farming and grow high yields?” he poses. “Generic farming would have to get really bad in a hurry for an increase supply in organic grains.”

Then, there’s the ‘bubble’ factor.

Jason Charles and Yasir Syed, who runs a 6,500- acre organic farm near Truax, Saskatchewan, agree that prices could be in for a correction — and that wouldn’t be a bad thing for the long-term stability of the industry.

“Markets do adjust themselves,” says Charles. “Organic spring wheat won’t be worth five times more than generic wheat for very much longer.”

Syed concurs “We are at the limits of price elasticity now — this is a bubble that has maxed out,” he says. “Besides, how can the whole organic movement succeed unless organics are affordable?”

At the end of the day, most experts agree that if new producers flock into the organic space, they should not be lured by prices but rather do so because they can make the long-term economics work.

The Charles family went organic by accident, explains Jason Charles.

“We had a really wet spring that year,” he recalls. “We bought some cheap fertilizer the year prior and then prices went up and we never got it, so 4,000 acres didn’t get planted. We just made the decision then that we’re done with the half-million-dollar fertilizer bills and million-dollar chemical bills.”

Now, he says, it feels good — and not just the business success.

“We do believe in the product,” he says. “We are not injecting any type of non-natural substance into the food source, so there is a sense of pride and belief that we are producing something that is truly good.”

According to the U.S. Department of Agriculture (USDA), which has set the standard for certified organic production throughout the Western world, organic food is produced with­out the use of “most conventional pesticides; fertilizers made with synthetic ingredients or sewage sludge; bioengineering; or ionizing radiation.”

Specifically, USDA specifies the following organic production practices:

The term ‘natural’, which is often applied to products lacking organic certification, has no clear definition in USDA or FDA regulations

Organic Growth 03 - Diagram

Certified Organic: What Does it Mean?

Producers seeking organic certification must do so from one of several approved certifying bodies, which often employ third parties to undertake producer audits and oversee the certification process. The transition to organic is typically a three-year process.

However, the rush to meet demand for organic grains means not all producers seeking organic certification need wait three years.

Properties where prohibited substances, particularly pesticides and herbicides, have not been applied typically face a shorter transition period if this has been documented.

“There’s a push to be more inclusive so that you can bring in that conventional farmer and get them to tweak a few things that they’re doing and still call it organic,” says Marc Loiselle of Loiselle Family Organic Farm in Vonda, Saskatchewan, and a member of an industry committee seeking ways to expand organic acreage.

He’s particularly concerned about recent developments in the U.S. that make greater allowances for the use of synthetic chemicals in organic food production when natural alternatives aren’t available — and hopes that Canada doesn’t become as flexible.

Yet, many certification bodies are certifying alfalfa growers after one year if they can prove they haven’t used sprays or other prohibited substances, says Laura Telford, business development specialist responsible for the organic sector with Manitoba Agriculture.

She downplays the concerns, however, saying that rules aren’t being broken, new ground is.

“What I’m seeing with the certification bodies is that in times of scarcity, they seem more likely to let in more producers,” she notes. “I don’t think they’re bending the rules, it just seems that there are more conventional producers that would break an alfalfa field in those years.”

According to the most recent edition of The World of Organic Agriculture published this year by IFOAM (International Federation of Organic Agriculture Movements) and the Research Institute of Organic Agriculture (FiBL), 88 countries had certification standards for organic agriculture in 2012.

The standards typically set a benchmark for production practices, allowed (and prohibited) substances, and how the harvested crop is to be handled.

For the most part, synthetic chemicals and fertilizers are barred, as well as genetically engineered products.

The Codex Alimentarius Commission, an offshoot of the World Health Organization and the Food and Agriculture Organization of the United Nations, defines the allowed substances.

Canada adopted a national organic standard in 2009, replacing a patchwork of industry standards that had previously governed the sector. The new federal legislation set a benchmark for the country, and in a significant step, was recognized as equivalent to the U.S. standard. Since then, the EU’s organic standard has been recognized as equal to the U.S. standard, facilitating trade.


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