Profitability of organic and conventional soybean production under ‘green payments’ in carbon offset programs

Abstract

AbstractEmphasis on reducing emissions from the greenhouse gases (GHG), carbon dioxide (CO2), nitrous oxide (N2O) and methane (CH4) has increased in recent years in the USA, primarily for industry, transportation, energy and agricultural sectors. In this study, we utilized on-farm data collected by the USDA-National Agricultural Statistics Service (NASS) Agricultural Resource Management Survey (ARMS), secured under an agreement with the USDA-Economic Research Service (ERS) to analyze the profitability of organic and conventional soybean production, based on changes that ‘green payments’ in a cap-and-trade system would introduce in agricultural markets in the USA. In particular, the analysis focused on establishing whether organic producers would be better positioned to sequester carbon (C) and reap the benefits of the C-offset scheme compared to conventional producers, given the differences in costs, management practices and environmental benefits between organic and conventional production methods. We estimated several changes in profitability of soybean producers according to management practices, incentives for the generation of offset credits, and increase in energy input prices that a potential cap-and-trade system may introduce in future agricultural markets in the USA. Survey data suggested that even with lower yields, conventional producers could profit from converting to organic agriculture, given organic price premiums. In addition, taking into consideration both direct and indirect costs, average cost for conventional-till (CT) organic soybean production was approximately 9% lower than no-till (NT) conventional production. With a C market and payments for soil C sequestration through potential Clean Energy legislation, additional profit could be accrued by organic producers, because organic production would have 28% greater ton CO2 eq. acre−1 yr−1 sequestration than conventional NT. Thus, the environmental benefits from GHG reduction could incentivize increased conversion from conventional to organic production across the USA.