Midwest organic farmers see benefits from "coop"-perating

The premium prices attached to organic crops make them an attractive production alternative for Midwest producers. New research funded by the Leopold Center suggests that organic farmers can further increase their profits by banding together in cooperatives to market their specialty products.

Farmers marketing organic grains through OFARM, an organized group of organic cooperatives, during 2002 and 2003 appear to have received higher prices, often by substantial margins, for all crops analyzed except oats. This suggests that collective marketing by OFARM cooperatives has positive economic advantages for member farmers.

A cooperative for organic producers
Farmers join cooperatives for two reasons. So-called "brick and mortar" cooperatives allow farmers to further process their products and therefore add value. Their alter ego "bargaining cooperatives" allow farmers to act collectively in pricing products at the farm gate. In the upper Midwest, several smaller bargaining cooperatives have sprung up to market organic grains on behalf of member farmers. The cooperatives have in turn networked through a "marketing agreement in common" to form the Organic Farmers Agency for Relationship Marketing, or OFARM.

OFARM is a legal structure that allows individual cooperatives to act in concert as they price and market products. Because of this, the market power of each individual cooperative is enhanced because buyers are prevented from playing the marketer for one cooperative against that for another. OFARM's publicity often claims that "by marketing together, we are making a difference." A comparison of prices received by member and non-member farmers indicates that this is indeed the case - OFARM is negotiating higher prices than farmers are able to get when acting alone.

How prices were compared
The analysis for this project required two datasets: OFARM prices received and prices received by non-OFARM farmers, as well as a method of comparing the two sets of prices fairly. Organic grains, unlike their conventional counterparts, do not have established futures markets or long histories of U.S. Department of Agriculture data that have come to be accepted in economic analysis. Furthermore, OFARM occasionally lists "target prices," that is, prices it deems fair for organic farm products. These target prices are sometimes taken to be prices received, but that is not always the case.

"Organic" and "Conventional" Grain and Soybean Prices in the Northern Great Plains and Upper Midwest: 1995 through 2003 by Streff and Dobbs was selected as the baseline data source for comparison. Streff and Dobbs analyzed sources of prices for organic corn, soybeans, wheat and oats and chose a method for estimating annual average prices for each year in their study.

How prices stacked up
For the 2002 crop year, the OFARM price was higher than that reported by Streff and Dobbs for corn, clear hilum soybeans, Vinton soybeans and spring wheat. The 2002 OFARM oat price was approximately the same as that reported by Streff and Dobbs. The highest premium gained by OFARM was 42 percent for spring wheat.

For the 2003 crop year, the OFARM price was again higher for corn, clear hilum soybeans, Vinton soybeans and spring wheat. The price reported for oats, however, was lower for OFARM participants than that reported by Streff and Dobbs. OFARM price premiums of 24 percent for Vinton soybeans and 22 percent for spring wheat were reported.

When asked about oats, OFARM marketers said that oats were grown by member farmers mostly for satisfying crop rotations and were not of sufficient quality to be marketed aggressively. Nonetheless, the high price reported for non-member oat sales in 2003 is puzzling. Streff and Dobbs report that another price series for organic oats indicated a price of $3.50 per bushel reported for food grade oats. That number, if accurate, is in line with OFARM performance in 2002 and 2003.

Nonetheless, the general finding of more cooperation leading to higher prices is worth noting by all organic farmers as they contemplate individual versus collective marketing strategies.

Calculating prices
OFARM prices were obtained from six cooperatives: Kansas Organic Producers Association, Midwest Organic Farmers’ Cooperative, Great Lakes Organic, NFOrganics, Organic Farmers of Michigan and Organic Bean and Grain Marketing. Prices were sought for 2002 and 2003 for crops that could be specifically compared to the data collected by Streff and Dobbs: corn, clear hilum soybeans, Vinton soybeans, spring wheat and oats.

The lowest and highest individual sale (that is, the price range) were collected for each of the six cooperatives reporting sales of each grain in each year. To remain consistent with the method used by Streff and Dobbs, the mid-point of the lowest price reported by any of the cooperatives and the highest price reported by any of the cooperatives for each of the crops in each of the years was taken as the annual price. Also for consistency, the OFARM prices collected were gross prices received, that is, marketing commissions paid to OFARM and individual cooperatives were not deducted from the prices used here.