1 The words "All", "Many" and "Few" rank the importance of an issue in terms of the proportion of votes it received by the workshop members.

The model is based on the Canterbury arable cropping model (MAF, 2000). More than 50 percent of the farm income is generated from growing crops. The whole farm can be irrigated, although in practice there is some dryland pasture where irrigation capacity is insufficient at peak demand. The farm is a mixture of cropping and livestock enterprises (Table 14 and 16). The model farm’s stock policies involve trading lambs and running a 2-year ewe flock for lamb production. Half the ewe flock is replaced each year. There are 110 cows grazed for 12 weeks at $14/cow/week. The Canterbury arable model was used as the base on which to examine the financial implication of addressing the major constraints to organic cropping and livestock production.

In the construction of the organic Canterbury arable cropping system, a number of changes and assumptions were made to accommodate the constraints identified by the Focus Group. These cover area of crop grown (Table 14), organic crop premiums (Table 15), and livestock policy (Table 16).

In addition to changes in crops grown, the following changes were made to the organic Canterbury arable cropping model:

• reduction in the area under cropping;
• no fertiliser nitrogen in the organic system;
• number of cultivations increased for weed control (Higher fuel, vehicle and labour costs per hectare, offset the savings on chemicals use);
• RPR applied at 450 kg/ha across the whole farm;
• lower crop yields;
• weed and pest control costs reduced.

• The MAF model farm runs 600 MA ewes, which have 130 percent lambing. All lambs are finished prime.
• Three hundred ewes are sold and an additional 310 ewes purchased each year.
• Wether lambs (830) are purchased each year and, of these, 120 are sold before mid winter, with the balance sold in July-September.

• Changes made to the organic system are required because of the difficulty of buying organically raised lambs. As a result, the organic system rears its own replacements.
• The organic farm runs 1,200 MA ewes, which start lambing on 10 August with 115 percent lambing percentage.
• No routine vaccination, drenching or dipping is done.
• All wether lambs (681) and 320 ewe lambs are sold prime, 70 percent by 1 December, with the balance sold by May. The remaining 361 ewe lambs are kept as replacements.
• The organic farm purchases 50 steer calves, which are sold at 20 months.
• Stock prices are based on modelled performance and the same $/kg carcass weight as for the sheep and beef model.

• 1705 bales of hay are made, with 1286 being fed, and 358 t of silage is made of which 222 t is fed in the organic system. Most farmers considered that having a large buffer of supplementary feed was a prerequisite for an organic system. Thus only what is fed is costed in the budget, plus one-fifth of the remainder, as the remainder represents an adverse season buffer. One adverse year in five is assumed.

• Two different scenarios are modelled for the green manure:

• 100 ha of green feed oats is grown and grazed, and 34 ha of green manure is grown and ploughed in.
• 50 ha of green feed oats is grown and grazed, and 84 ha of green manure is grown and ploughed in.

Table 17 Assumptions for conversion to organic production

Table 18 shows the financial outcomes for:

• MAF base model.
• Organic policy with no premium: changes made to the MAF base model to accommodate constraints to organic production. No premium.
• Organic with premiums: premiums are based on those currently being received for organic crops (crop premiums for the organic system of 167-333 percent), and the livestock premiums used in the sheep and beef model (i.e. 50 percent for lamb and beef), with 80 percent of both lamb and beef finished to specification.
• Organic "break-even" 46 percent premium: indicates that an average 46 percent premium is needed on all produce to generate a comparable cash farm surplus to the MAF base model.

The major effect on the profitability of converting to an organic farming system arises from changes to both the cropping and livestock policies. The change in cropping policy and stock policy, assuming static prices, results in a reduction of $171,679 in gross farm revenue and $118,118 in the cash farm surplus. This decline is driven by the shift to less profitable and productive cropping options, a contraction in the area under cultivation, and a less profitable livestock policy.

Using the premiums currently on offer, cash farm surplus is higher in the model example than in the base model. However, the group considered there were also greater risks associated with this scenario through the loss of flexibility and increased dependency on a few crops, particularly cereals and process peas.

It is reasonable to suggest that funding the reduction in farm income resulting from the changes required in the cropping and livestock policy to accommodate the constraints to organic production during the conversion period would be a major constraint to growing this sector of the primary industry.

If conversion is restricted to the cropping component of the operation and the livestock policy in the MAF base model is retained but run as a non-certified stock enterprise, and the income then adjusted upwards to incorporate the greater area in pasture, the cash farm surplus increases to $122,000. This situation would be permitted as an interim activity. In the long-term, however, the livestock policy would have to shift to organic certification.

There is little difference between CERTENZ and BIO-GRO in the stringency of their specifications for arable crops. It was therefore concluded at the workshop that the choice of most arable farmers would be to certify under BIO-GRO, because BIO-GRO has been in the organic industry for a longer period of time and therefore is better known and often commands a higher premium than CERTENZ.

However, there is a difference between CERTENZ and BIO-GRO in production specifications when it comes to livestock. It is possible to finish a higher proportion of stock to specification under CERTENZ than BIO-GRO, as the CERTENZ standards allow a greater degree of intervention without the loss of certification. Arable farmers with a large proportion of their earnings coming from sheep and beef may therefore choose to register with CERTENZ if it appears that CERTENZ premiums for livestock remain competitive with BIO-GRO. In practice, the authors understand that some organic arable farms have dual certification.

To address the issue of increased cultivation to control weeds in the organic system, a proportion of the green manure crops were ploughed in to assist with the regeneration of the soil structure. Composting as a means of building soil fertility and improving soil structure is at the heart of an organic system. Two scenarios were examined:

Scenario 1: 100 cows are grazed on 100 ha of oats, returning $16,800. This is the scenario shown in Table 18.

Scenario 2: Only 50 ha of oats are grown, and 50 additional ha of green manure are ploughed in. Given the timing and size of feed flows, this action results in a reduction of 50 cows grazed, and income is reduced to $8,400. The alternative is to feed additional supplements at an extra cost of $1,765 and retain grazing of 100 cows. Another option would be an overall increase in premiums of 4.5 percent to account for the cost of ploughing in an extra 50 ha of green manure.

The MAF base model used in this exercise to examine the financial implications of meeting the constraints to organic production identified by the workshop members is based on a Canterbury arable cropping unit. The arable sector, like the sheep and beef sector, is characterised by a great diversity of cropping and livestock operational mixes. The extent to which funding the conversion period becomes a constraint to an arable producer will depend on the degree to which the existing cropping and livestock policy has to be changed, and the extent to which this impacts on the financial performance of the business.

The financial viability of the organic arable sector depends on a significant premium for both the cropping and livestock enterprises. This is because of the less profitable cropping and livestock options, an expansion of the area under pasture, and the lower crop yields in the low nitrogen environment in the organic system.

The workshop identified the risk of price variation in the small domestic market for organic grains, but also identified potential export opportunities for grass and clover seeds into European markets. A reduction in the diversity of crops that can be grown exposes the producer to one or two major processors only (e.g. process peas) and increases the risk and reduces the ability to react to opportunities. Other factors include less flexibility in the crop rotation options and the necessity for a pasture ley to build soil fertility and restore physical structure.

For arable producers, the effect of weed invasions can be immediate and devastating on crop yield, quality and value. The necessity to use mechanical control as the major technique for managing weeds in an organic arable system creates a series of additional threats to the system by impacting on the soil resource. Repeated cultivation will reduce the structure, encourage mineralisation of organic matter and reduce the biological activity of a soil. This reduces the resilience of the soil to extreme events, reduces the window of time when soils can be cultivated, increases the number of cultivation passes to prepare the seedbed, and eventually necessitates the incorporation of increasing amounts of organic matter to preserve current production levels. However, this is countered by a less intensive rotation with a longer pasture phase. Lack of access to nitrogen fertiliser reduces not only production opportunities, but also risk management options.

The risks identified and discussed in the sheep and beef section of this report are also relevant to the livestock component of the arable model.

One of the risks of organic production is that if something unforeseen occurs, there is a limited range of allowable responses to fix a problem if the organic status of the animals and their products is to be maintained. Organic producers need to be forward looking, good planners and managers, and have different thought patterns to conventional producers.

Compared with the wider industry, organic producers do not have the same knowledge and management infrastructure available to them. This causes uncertainty and potentially results in delays in actions.

Contact for Enquiries

Kay Brown
Sector Performance Policy
MAF Policy
Ministry of Agriculture and Forestry
PO Box 2526
Wellington
NEW ZEALAND

Phone: +64 4 894 0695
Fax: +64 4 4 894 0746
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