OGrain Compass: A tool to assess the costs of converting to organic production

by Katie Navarra

Organic farmers, or those considering transitioning to organic production, now have access to a set of tools for analyzing the long-term profitability potential of organic production. The Excel-based tool was conceived by University of Wisconsin-Madison professor Erin Silva to assist organic farmers with planning. John Hendrickson of the University of Wisconsin Center for Integrated Agricultural Systems and Jim Munsch of Deer Run Farm in Coon Valley, WI, led the effort to develop the OGrain Compass.

“The Compass Tools is a name given to a series of spreadsheet tools to help growers organize data and measure enterprise profitability by crop/product and market channel,” Hendrickson explained.

The OGrain Compass yields detailed financial results for the totality of the operation, including the impacts of cropping decisions in a proposed rotation, the cost of equipment, provision for investments to make the enterprise financially sustainable and the full burden of overhead expenses. Users can easily adjust yield and price scenarios to view how these uncertainties affect the bottom line. The tools are just a few of many resources developed and supported by the Organic Grain Resource and Information Network (OGRAIN).

During a webinar, Hendrickson and Munsch described why the tool was developed and offered a step-by-step tutorial for using it. About 10 years ago, OGrain released its first, the Veggie Compass. Users input data from the previous year’s crop to figure out what profited or lost money for the season.

“If someone was growing 60 different crops and using six different marketing channels it gave them an idea of what worked and what didn’t,” Hendrickson said.

The organization’s newest tools, the OGrain Compass and Fruit and Nut Compass, are forward-looking planning tools that help a farmer determine if the investment in organic production of a given crop is feasible.

“With the Fruit and Nut Compass, growers can include as many as 12 different species and project over a 15-year period so they know their costs in infrastructure and when they will start making money,” he added.

Transitioning to organic production is an investment and farmers need to understand the financial speed bumps they’ll encounter along the way, Munsch said. He breaks them down into four categories:

  • The financial drag of transition years. Farms will have higher input costs and need strategies during this period of time associated with up front costs of increasing soil health and productivity, especially in the conversion of CRP to organic land. “Usually no prohibitive substances have been put on the land, but it has become fairly unproductive over the years due to the agreements the landowner had with the government,” Munsch said. “It takes inputs to get it back to productivity.”
  • Crop rotations needed to fulfill NOP rules on soil health (Sec 205.203). If the certifier is carefully following the rules there will be a rotation that calls for more than corn or beans. “Often other crops injected into rotations are not as profitable as some of the others,” Munsch said. “If you don’t look at the economic effect of whole rotation, you’re missing a big part of the equation.”
  • Capital for new equipment.
  • Security of land to farm. Munsch calls this a hidden issue with a potential for a high financial impact. “If you own land, that’s one thing, but if you are renting and don’t have a secure rental agreement over a long enough period and you’ve gotten over all of the first three road bumps, you can be taken out by this one,” he said, “especially if you’ve converted the land and the owner then rents to someone else.”

Using the Compass tools forces farmers to consider these potential financial road bumps while also predicting profitability and cash flow over an extended period. The tool is designed for 10 years but can be cascaded further into the future.

“We are enabling and asking producers to predict revenue, price and yield and help them decide what cost structure they will have and what inputs they will use,” Munsch said. “It also enables them to decide which assets they need and how much they are willing to pay for them.”

Beyond helping farmers analyze and predict the financial outcomes of putting land into organic production, the data generated through the OGrain Compass can support conversations with lenders, partners and landlords.

“If you’re going to a lender, this tool provides that lender with some feeling of comfort that you understand the risks involved and they are more prone to support you with money,” Munsch said. “Often the partner involved is the spouse. This can help decide if you’re going to use all the money saved for the kids’ education, cars, et cetera, to do all things needed to go to organic.”

Similarly, the data can support conversations with landlords when requesting long-term agreements. A landlord wants to know your business will be around in 10 years and able to pay the lease before agreeing to lengthy land commitments.

Planning for financial success requires understanding how various crop rotation and production decisions will influence financial returns. The new OGrain Compass is a planning tool to help producers understand the financial implications, at both the crop and whole-farm level, of cropping decisions.

To learn more about the Compass and to use the spreadsheets, visit ograin.cals.wisc.edu/resources/ograin-compass. The document includes a user manual with detailed instructions in the first tab.

2020-06-24T14:48:15-05:00June 24, 2020|Grower Midwest|0 Comments

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