Organic food production is a fast-growing sector in the agriculture industry. Consumer demand for organic produce has steadily grown since the beginning of the market three decades ago and is a $40 billion dollar industry. Certified organic food products occupy space in 3 out of 4 conventional grocery stores and make up 4% of food sales in the United States. Organic farming provides producers with access to premium crop prices, incentivizes regenerative agriculture, and creates a wide variety of opportunities for sustainable investing. Despite increasing demand for organic produce, less than 1% of U.S. farmland is certified organic making the vast majority of produce conventionally grown.
If there are so many appealing aspects of organic farming, why aren’t more farms on board? Organic farming provides entrepreneurial opportunities for farmers interested in thinking outside of the framework of conventional farming, but the cost of qualifying for a certification and the added difficulty of adjusting their practices in the field within the certification’s restrictions keep many farmers from making the switch to organic. From the certification process to industry infrastructure, farmers face a range of obstacles when converting their land and business to an organic farm, but it’s worth it in the long run.
FarmTogether is enthusiastic about the potential for organic farming, as well as about the growth in the organic food and beverage market nationwide - both of these provide strong justification to take an interest in organics as a farmland investor. That said, we acknowledge the barriers that exist to adoption of organic farming methods. Let’s take a closer look at some of the things farmers have to navigate to convert to organic successfully and discuss what they mean in the context of farmland investing.
USDA certified organic foods are grown and processed according to federal standards and regulations. While the strict USDA organic requirements are helpful to consumers and necessary for the integrity of the organic market, the detailed regulations can present financial barriers for farmers interested in converting their farmland to certified organic. The USDA standards for organic farming require no prohibited substances to be applied to farm ground – like pesticides, herbicides, and fungicides – for a full three years before the crop can be certified.
The required chemical free time period helps ensure chemical residue stays out of certified organic crops but presents major financial challenges for farmers. During that initial period, farmers must grow their crops using the organic certification standards but are not able to capture the premium prices for organically grown crops. The inability to use chemicals to address pest and disease problems leaves farmers vulnerable to low crop yields and an unpredictable harvest. The long transitional period prior to certification means that farmers must compete in the commodity market without the advantage of chemical inputs their competitors are using. The financial loss as a result can be prohibitive for farmers interested in making the switch to USDA organic.
For row crop farmers, the USDA certification standards address environmental challenges typically treated with chemicals by requiring farmers to implement a 3 to 7 year crop rotation. The crop rotation standard means that every growing season a different plant must be grown on a given field. Rotating different types of crops breaks up the life cycles of weeds, pests, and disease over time. For example, broccoli suppresses fungal pathogens in the soil making it an ideal crop to plant after a rotation of strawberries.
Unfortunately, a crop rotation that works well for soil and pest prevention does not always work well for the farm’s finances. Incorporating a broccoli rotation helps soil function and long-term crop health but does not sell for the same high prices as strawberries. If the farmer is leasing land, the price of the lease is often set based on the highest value crop the land can support, leaving the farmer behind financially.
Varying the types of crops from year to year increases soil function and lessens the need for added fertilizers because different plants contribute different benefits to the soil system. To apply for an organic certification, farmers must create a detailed rotation system plan for their certifier following guidelines intending to promote soil health. The rotation system plans need to follow a lengthy set of guidelines for ecologically beneficial crop rotations: legumes should be followed by plants with a high nitrogen demand, annual crops should be grown only one year in a given location, crops should not be followed by a closely related crop, grow some crops that leave a significant amount of plant residue, and the list goes on.
Row crop farmers must balance product demand when creating and executing the complicated systemic plan needed to convert to organic. The economic incentives to grow a certain crop don’t always align with the crop’s agro ecological benefits. Farmers in rural areas often lack practical means to convert to organic because there is scarce opportunity to sell any organic products locally, meaning they would have to find a buyer further away.
Farmers growing permanent crops like almonds and avocados don’t have to worry about managing complex crop rotations but they must follow the same standards for chemical inputs and the extensive three year transition period. Because permanent crops grow in one place for many seasons, permanent crop farmers do not have the option of plowing fields to help break weed and insect life cycles. The added weed and pest pressure can decrease yields and increase the amount of manual labor needed, taking a toll on the permanent crop grower’s finances.
Learning how to navigate weeds, pests, and diseases without the option of chemical solutions is a huge undertaking. Farmers often rely on generational and institutional knowledge when making decisions on their operations. Transitioning into certified organic requires going out on a limb often without support from previous generations or existing institutions. Transitioning to an organic operation provides ample opportunity for farmers to make big mistakes while learning how to farm in a completely new framework.
While farmers in the commodity market are able to use fertilizers and pesticides to help ensure a relatively consistent yield at harvest, producers growing food outside of the commodity system don’t have access to quick fixes and must think about how to solve soil health and pest problems holistically. Managing farmland without chemicals has long term benefits for the land, but the first few years using organic farming practices carry added financial risk and uncertainty for the farmer. The added risk that comes with launching a certified organic venture on the farm can be unattractive to farmers who already understand how to make a living via conventional methods.
Organic farming typically requires more labor for harvesting and processing than conventional farming. Long term, this aspect of organic farming creates much needed opportunities for employment in rural communities. For the beginning organic farmer, the need for more labor adds to the cost of operation in addition to the need for specialty equipment and storage.
Many organic crops require specialized equipment for harvesting and planting. Finding specialty equipment is often difficult and usually much more expensive than the cost of equipment used for conventional farming. All certified organic crops must be stored in facilities not previously used by non-organic crops. These specialty storage facilities aren’t as available as storage for commodity crops, making them expensive and difficult to find.
Conventional US farms apply 1 billion pounds of pesticides to cropland every year. When pesticides and other agricultural chemicals are applied to one field, it’s not uncommon for a breeze to carry that chemical to the next field creating problems for organic farms neighboring conventional crop fields. Pesticides drifting on organic farmland can damage plants and prevent the farmer from selling produce under a certified organic label for up to three years.
Organic farmers are often surrounded by conventional fields and must put resources into mitigating the amount of chemicals making it onto their property. Farms in this predicament commonly put resources into planting and maintaining shrubs as buffer strips between the organic and conventional crop land. While buffer strips help with the problem, shrubs cannot help protect the organic farm from chemical drift after pesticides are applied to neighboring fields aerially with crop dusting planes.
Although regulations and high operating costs for organic farming can be obstacles to many producers breaking into the organic market, both the government assistance programs and research and extension initiatives have mobilized to provide support. The USDA Farm Service Agency (FSA) has developed financial assistance programs specifically for farmers seeking to become certified organic Meanwhile, the USDA National Institute of Food and Agriculture (NIFA) has launched various research and extension programs aimed at assisting farmers with organic transitions, researching agronomic improvements and deploying technical assistance for organic farming in more than 40 states.
Companies focused on sustainable investing have also developed programs to help farmers through this transitional period, increasing the likelihood producers breaking into organic farming succeed. Whole Foods created the Local Producer Loan Program to help small, organic farms develop specific products. The outdoor clothing company Patagonia financially supported the creation of the Regenerative Organic Certification which provides certified farmers with access to markets and cost share programs. Thanks to programs like these, farmers can find help with the cost of transitioning to organic, storage and handling equipment, buildings, repairs, insurance, and more. The Rodale Institute has compiled a list of public and private funding opportunities for farmers seeking financial assistance for the organic certification process.
The long-term benefits of switching land to organic can far outweigh the challenges. The value of farmland depends highly on the value of what the land can produce. Certified organic farmland has seen an increase in value along with the produce it grows. Premiums for organic products incentivize regenerative agriculture practices that build soil and promote biodiversity because farmers must accommodate the natural requirements of the soil. Building soil and keeping chemical inputs out of the production system adds intrinsic value to the land and has the potential to increase long-term productivity of farmland making organic farming an attractive addition to investment portfolios. FarmTogether offers carefully selected farms for investors looking for sustainable investment opportunities.
Our mission is to support sustainable and profitable farming by leveraging technology, and removing the barriers to entry to farmland ownership, all the while providing individuals, our investors, with an opportunity to share in the rewards from farming well.
Disclaimer: FarmTogether is not a registered broker-dealer, investment adviser or investment manager. FarmTogether does not provide tax, legal or investment advice. This material has been prepared for informational and educational purposes only. You should consult your own tax, legal and investment advisors before engaging in any transaction.