October 21, 2019
Editor’s Note: This is a guest blog post by Jeff Schahczenski, an Agriculture and Natural Resource Economist on the staff of the National Center for Appropriate Technology, a member organization of the National Sustainable Agriculture Coalition. We are very pleased to have him as a contributor to these pages.
“Rhetoric may be defined as the faculty of observing in any given case the available means of persuasion” – Aristotle
Is organic farming risky? Well of course, all farming is risky. But, is organic agriculture somehow inherently more risky than other systems of production? Here I will try to use my best rhetoric to answer this simple question. And, please note that simple questions are often the most difficult to answer well.
The short answer is that organic agriculture may be no more revenue risky than non-organic agriculture. This result challenges a widespread stereotype about organic farming. “Revenue risk” here means the risks farmers face due to changes in market price and yields as well as the interaction of those two factors.
The National Center for Appropriate Technology (NCAT) has just released a report on a five-year research and education project funded by the U.S. Department of Agriculture’s (USDA) National Institute of Food and Agriculture (NIFA). I was a co-author of the report, along with Dr. Mike Morris of NCAT and Dr. Eric Belasco of Montana State University.
There is always a backdrop to research, and here’s my story: I have been working for 14 years now to try to figure out whether federally subsidized crop insurance promotes a more sustainable agriculture. A long, long time ago, I read about two obscure types of insurance called Adjusted Gross Revenue and Adjusted Gross Revenue Lite. What caught my attention was that these policies protected the whole farm’s revenue rather than any specific crop. Through the hard work of the National Sustainable Agriculture Coalition (NSAC) and many NSAC members, these policies became the Whole-Farm Revenue Protection (WFRP) policy: created in the 2014 Farm Bill, rolled out in 2015, and still being improved – most recently via congressional suggestions in the 2018 Farm Bill.
From the beginning of this journey, I thought insuring whole farm revenue was a very common sense approach, since what do farmers really want? Most of them want to keep farming. Easing the burden of the often-volatile price and yield risk across the whole farm would help farmers continue to farm.
Also, WFRP causes less market distortion than what happens when we subsidize insurance for individual commodity crops like corn or cotton. This addresses one of the main criticisms of the federal crop insurance system: that it picks winners and losers. WFRP is neutral: it does not incentivize one crop over another. Instead, the farmer chooses crop and livestock products they think will maximize their revenue and we, the public, help them maintain that revenue. WFRP premiums also decrease as the diversity of crops and livestock products increases. Common sense and tons of research tell us that that diversification reduces risk, meaning fewer crop insurance payments and lower taxpayer expense.
Since organic systems tend to be diversified, the diversity aspect of WFRP is often a plus for them. Organic farms are also automatically insured under WFRP for the typically higher value of their products, because these higher organic prices are reflected in the farm’s revenue history. So, we have a type of insurance that incentivizes organic and sustainable diverse systems of production and lowers public expense. Sound like a good idea to you? It does to me.
What does any of this have to do with organic farming risk and our report? Well, it turns out that comparing organic and non-organic farms using WFRP provides a window into the overall risk of these farms, enabling us to investigate those harmful negative stereotypes that have caused so much grief for organic farming and motivated our research.
To explain this, bear with me while I introduce just one piece of insurance jargon: A “loss ratio” is the mathematical result of dividing insurance indemnities (payouts) by premiums (pay-ins). The federal government is required to keep loss ratios at or below 1.0 for the crop insurance program as a whole, and over the past decade most organic crops have had loss ratios above 1.0 and quite a bit higher than their conventional counterparts. Put simply, insurance payments have been high for a lot of organic crops, creating a perception that organic farming has greater revenue risk than non-organic farming.
In our research, we looked at WFRP loss ratios, which should give a better indication of a farm’s revenue risk than looking at the loss ratios of individual crops. Also, they should give a much better indication of the overall risk of a more diversified farm.
Sure enough, when we looked at all the farms that have ever bought WFRP we found no statistical difference between the WFRP loss ratios for organic and non-organic farms. Incidentally, this was the first time such a study had ever been done, and in order to do it we had to get previously unpublished data from the USDA Risk Management Agency. To check the validity of this result, Eric Belasco came up with an ingenious way of calculating hypothetical WFRP loss ratios for a random group of organic and non-organic farms in Minnesota. Again, there was no statistically significant difference.
What do these results mean? Well, we aren’t completely sure, and they have caused a lively debate among the members of our project team. Our sample size was limited in one case to organic farm-level data for field crop farms in Minnesota. In the other case, our sample included data from all WFRP policies sold in the United States between 2015 and 2017. We aren’t leaping to definitive conclusions. More study is needed, for sure. But, after making a thorough search over the past five years, I’m able to report that we found no strong evidence that organic farms are any riskier than non-organic ones, and at least some evidence to the contrary.
There’s a lot more good stuff in our report:
Please check out our report, and I welcome your feedback.
The report is based on research that was supported by USDA’s NIFA under award number 2014-51300-22224. For more information about this report, visit ATTRA website.
NCAT agriculture programs help growers reduce costs, maximize profits, and preserve the land. Through our various sustainable-agriculture services, including our acclaimed ATTRA program, we provide assistance on a wide range of topics, from local foods to sustainable and organic production to farm energy. We help farmers and ranchers practice regenerative production methods that conserve natural resources and maximize profits.
We provide hands-on support to producers through workshops, trainings, and educational materials. Hundreds of publications, webinars, podcasts, tutorials, and videos are available on the ATTRA website. These resources are complemented by personalized assistance as requested by individuals. Visit the NCAT website for more information about all of the NCAT’s programs and services.