Organic beef captures price premiums
In 2019, the US had 1.974 million acres of National Organic Program USDA certified pastureland and 41,780 organically-certified beef cows. The price of organic beef averaged $9.26 per lb in 2019 which represented a premium of $3.66 per lb or 67% over conventional, according to USDA Agricultural Marketing Service Weekly Retail Organic Price Comparison reports.
Producers get premiums, too. But amounts are hard to pin down. We are unaware of any USDA report, or other source, for organic cattle prices or price premiums. One reason is organic beef production is by and large not a spot market business, it’s a program. Producers don’t treat it as an option. They develop long-term supply relationships predominantly using forward contracts to help assure a 12-month supply to meet a 12-month demand.
Premiums are the result of consumer demand as well as the additional costs to produce organic beef. Consequently, to determine whether to target a product to the organic market, or any market for that matter, producers need to understand both the added cost to produce for the specific market and the price elasticity of demand for the product.
Organic is a marketing tool
USDA’s National Agricultural Statistics Service recently released the 2019 Organic Survey, which was part of the 2017 Census of Agriculture program. This was the sixth comprehensive organic survey USDA has conducted. The previous was conducted in 2016.
The National Organic Program states that all farms, ranches and handling operations displaying the "USDA Organic" seal must be certified organic by the state or by a private agency accredited by USDA, to ensure standards are followed. Farms that follow the National Organic standards and have less than $5,000 in annual sales can be exempt from certification. The exempt farms may use the term "organic," but may not use the "USDA Organic" seal. The 2019 Organic Survey published data from producers that were certified organic and those transitioning to organic certification.
Organic is not just a label. It is a marketing tool. Producers must adhere to strictly regulated processes and be vetted by USDA-accredited certifiers in order to receive the organic designation. Animals raised on an organic operation must meet animal health and welfare standards, not be fed antibiotics or growth hormones, be fed 100% organic feed and have access to the outdoors.
Organic gaining traction in Iowa
Results of the 2019 Organic Survey released October 22, 2020 show Iowa had 26 organic certified beef cow farms, 107 organic milk (dairy) cow farms and 143 organic other cattle farms. Other cattle include heifers that have not calved, steers, calves and bulls. From 2016 to 2019, Iowa added 9 organic beef cow farms, 31 organic dairy cow farms and 48 organic other cattle farms.
Iowa is tied for fourth with Pennsylvania nationally in the number of organic beef cow farms behind only New York, California and Vermont. Iowa ranks eighth in both organic dairy cow operations and organic other cattle operations. Even so, Iowa only has about 4% of US organic cattle operations. Iowa ranks lower in inventory numbers and has about 2% of the national organic cattle inventories.
In 2019, Iowa had 133,691 acres of organic certified agriculture land. Organic pastureland acres rose by 49% or 6,616 acres from 2016 to 20,167 acres in 2019. Organic cropland totaled 113,524 acres in 2019, up 27% or 23,939 acres from 2016. Organic acreage is still less than 1% of total Iowa farmland. Iowa did have 369 acres transitioning to certified organic pastureland and 12,790 acres transitioning to certified organic cropland in 2019. Land must have had no prohibited substances applied to it for at least three years before the harvest of an organic crop.
The Iowa organic beef cow inventory at 1,117 head decreased by 25% from 2016 to 2019 but remained near 2011 and 2014 levels (Figure 1). For perspective, Iowa’s total beef cow inventory was over 905,000 head in 2019. Iowa’s 5,967 organic milk cow inventory rose 53% from 2016 to 2019. The organic other cattle inventory climbed 29% to 6,755 head.
Iowa organic farms sold $144.596 million in organic commodities in 2019, up 10% from 2016. Organic sales from farms in Iowa are distributed 48% from crops, including nursery and greenhouse, 13% from livestock and poultry, and 39% from livestock and poultry products.
Iowa’s largest organic animal agriculture commodity is chicken eggs. With $37.106 million in sales in 2019, eggs represent 26% of all organic sales in Iowa (Figure 2). Milk from cows is second for livestock with $19.103 million in sales or 13%. Other cattle sales, which would presumably be mostly fed cattle, accounted for $3.347 million in sales or 2.3%. These values were roughly the same for hogs and pigs sales.
In 2019, the average value of sales per Iowa certified organic farm was $186,095. Average sales values per farm certainly vary widely within farm types and across farm types. Average farm value of sales was highest for chicken eggs at $378,630 per farm. Swine farms and dairy cow farms were similar at $198,136 and $181,935, respectively, per farm. Other cattle farms averaged $30,154 while beef cow farms averaged $7,521 (Figure 3).
Organic offers diversification opportunity
In Iowa, 45% of all farms with organic sales are 100% organic and the other 55% are mixed operations. The data do not shed light on what percentage of total organic sales, and sales by commodity, are from 100% organic operations. Nonetheless, the organic market appears to be an important opportunity for diversification for many conventional Iowa farms.
Of the Iowa producers surveyed, 45% said a major challenge is regulations. Over a third expressed issues with pricing and/or production problems. Specific to organic beef, research suggests costs of production are higher than commodity beef because of lower productivity, increased processing and marketing costs and additional risks.
Some argue that drought more heavily stresses the organic segment of the beef industry than the conventional segment. Survey data gathered in Iowa in 2019 would not have detected that challenge. The latest weekly Drought Monitor showed 36% of Iowa in drought and an additional 32% abnormally dry. This time last year, no drought or abnormally dry conditions were reported in Iowa.
Lee Schulz, extension livestock specialist, 515-294-3356, firstname.lastname@example.org