Cash Crunch

A serious challenge for farmers is the cash flow crunch they might experience during transition. This can occur because of an interaction of a number of factors:

• temporary drops in yields while weaning the farm off of conventional farming methods and learning new farming methods;
• taking fields out of cash crop production to grow green manures and other soil-building crops as part of a long term rotation;
• problems marketing new crops;
• new expenses (capital expenses ie new equipment, and input costs, such as soil amendments or organic feed).

Although input costs are lower for organic production, there may be initial high costs while you work at improving your soil and learning how to control pests organically.

The three-year transition period can be characterized by absorbing organic costs (e.g. feed) but not being able to charge an organic premium. In some circumstances a partial premium may be available for transitional products or “natural” products. In some commodities (such as dairy) few transitional price premium options exist. Farmers will have to plan on receiving the conventional market prices.

The following strategies and tactics can be employed to manage the risks associated with the Cash Crunch:

• Assess the Impacts of Transition
• Use Conservative Estimates
• Transition Parts of Operation
• Plan Your Entry
• Verify Customer Demand
• Strategic Reserve
• Start Off Small
• Control Expenses
• Don’t Quit Your Day Job
• Contracts
• Assess Scenarios
• Have a Back-Up Plan
• Assess Marketing Options