Devry Econ 545: Microeconomic Analysis

Economics 545: Microeconomic Analysis

Project 1

Situation D

Dec 7, 2014

Uncle Dan, this is in response to the email you sent on switching crops after such a long time. I was surprised but you have been in this farming business so long I trust your instincts and decisions. I will be happy to do some research and help you with some information on the organic products market, discuss some of the challenges and advantages versus the corn farm you’ve had for years. I will also discuss supply and demand, production cost, prices, economy and normal profit and loss.

The first thing I bet you know already is that the process and procedures will need to be adjusted from the conventional corn farm to organic farming. Though some of these skills, materials and equipment could be easily leveraged, the biggest adjustment will be in the processes. After 30 years in conventional corn farming, I can proudly say you are an expert however profitability is always the real deal. Transitioning involves a learning curve to adjust to new production methods. New equipment may be needed. If you got rid of your moldboard plough, you may have to buy another one, said Alexander, an organic farming expert. The new organic farmer must learn how to respond to pest and disease challenges without using chemicals. Another challenge is low yields, which new organic farmers can expect for the first three years. But yields will eventually improve, according to research at Iowa State University. “After three to five years, yields may be 90-95% of conventional grains.” While food-grade corn and soybeans command higher premiums, organic farmers must meet quality demands to earn those premiums. Organic certification also presents challenges. “You need to have good records,” said Alexander.

Let’s talk about supply and demand in the organic market as a whole. In recent years consumers are becoming more aware of what goes into the bodies which has generated interest in the organic food business. That...