Organic Cost of Production Resources & Calculators
What is Cost of Production Analysis?
Cost of Production (COP) budgeting and analysis consists of estimating the costs and expected revenue for an enterprise, to help with business decision-making.
Why Calculate My Cost of Production?
Using your cost of production for benchmarking, monitoring and decision-making is a significant driver of farm financial success. A 2015 research report found that the top 25% most successful Canadian farmers of all types and sizes make regular use of up-to-date financial data and costs of production for their business decisions (IPSOS Reid, Farm Management Canada, Agriculture and Agri-Food Institute). Reviewing your costs of production can help you decide if prices must be increased, costs must be decreased, or you should produce something else.
However, cost of production accounts for organic production are limited, yet the costs for organic production can vary significantly from conventional crop budgets. The Organic Council of Ontario, with support from the Canadian Organic Growers, has created four organic Cost of Production resources in a diverse range of high-value organic commodities. Our Organic Cost of Production Resources can be used by transitioning as well as established organic operators to better understand costs of specific organic production practices, as well as learning from the producers in the studies to find cost-savings and improve profitability.
Overview of Resources
The 2020 series of organic cost of production (COP) models were prepared by the Organic Council of Ontario with support from the Canadian Organic Growers and funded in part by the Canadian Agricultural Partnership, a
five-year federal-provincial-territorial initiative.
Developed by organic experts in each of their respective fields of production, the resources are based on financial data voluntarily provided by Ontario organic producers.
Project Goals
OCO undertook this research to provide a better understanding of the cost of production of Organic Dairy, Field Crops, Salad Greens, and Pastured Poultry, including where organic stands in terms of cost of production. We hope to share these resources with new and experienced farmers to help them get started or develop their businesses.
Free for OCO and COG members, and $25 for members of the general public, each resource contains a guidance document (PDF) which provides an overview of the methodology, assumptions, and guidance for how to complete the accompanying cost of production budget spreadsheet. The cost of production budgets are excel spreadsheets which present an average cost of the participating producers, as well as space for you to fill out your farm’s revenues and expenses.
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Please note, if you are a certified organic operator, you are automatically a basic member of OCO. OCO Members can receive their free copy of the management tools on OCO’s data portal or on our reports page. Members of the general public can purchase the management tools from our reports page. If anyone has any issue downloading a report, please can reach out to OCO’s staff at: communications@organiccouncil.ca.
Glossary of Key Terms
The following terms are used in the Cost of Production resources and are common across all Cost of Production analysis.
| Term | Definition |
| Amortization | Amortization refers to spreading costs over multiple time periods. |
| Capital costs | These costs represent an investment in equipment that lasts more than a single year which increases production efficiency and quality. |
| Cost of production | Cost of Production (COP) budgeting consists of estimating the costs and expected revenue for an enterprise, to help with business decision-making. |
| Depreciation | This is the reduction in the value of an asset like machinery or equipment over time (wear and tear). Annual depreciation is calculated by taking the total upfront cost of the equipment divided by the expected life of the equipment (number of years). |
| Enterprise or whole farm costs | Many overhead costs such as organic certification, property taxes, buildings and infrastructure, and general farm insurance are costs for the whole farm. For the cost of production calculation, it can be difficult to allocate whole farm expenses as they are not directly attributable to a single enterprise, but all enterprises share the cost. In each of the cost of production budgets, a percentage of whole farm costs have been included in the final calculation. |
| Fixed costs | These are expenses that remain the same regardless of the level of production (i.e., property taxes, licensing costs, depreciation, etc.) |
| Gross sales / revenue | The gross sales or gross revenue is the average price received per selling unit, multiplied by the average yield. |
| Interest rate / opportunity cost | “Interest on investment represents the cost of money tied up in purchasing assets or operating inputs whether the money is borrowed or your own. This is also referred to as the opportunity cost; it is what you could have earned with that money if you had invested it in the next best alternative.” (OMAFRA Fact Sheet, Guide to Cost of Production Budgeting) |
| Net profit (loss) | Your net profit (or loss) will be your total income minus all variable and fixed costs. |
| Production unit | This is the base unit used to produce the output or yield, such as an acre of land, square ft. of greenhouse space or bed, etc. |
| Selling unit | This is the unit that the commodity is commonly measured by for sales, such as pounds of meat, metric tonnes of grain, etc. |
| Variable costs | These are expenses for the production of a specific commodity. These change depending on the level of production (i.e., seed, fertilizer, pesticides and feed). Variable expenses can also include expenses used in producing all commodities on the farm (i.e., fuel, labour and utilities), which will be apportioned based on their percentage used for this specific commodity. These also change depending on the level of production. |
Acknowledgements
We would like to thank the producers who participated in this project by providing their financial data. These resources would not have been possible without their valuable contributions and cooperation.
This project was funded in part by the Canadian Agricultural Partnership (the Partnership), a five-year federal-provincial-territorial initiative.
The views expressed in the report and associated materials are the views of the Organic Council of Ontario and do not necessarily reflect those of the Canadian Agricultural Partnership.
We would also like to acknowledge the support of the Canadian Organic Growers in producing these materials, as well as our advisory committee, including Hugh Martin, Rob Wallbridge, Eric Payseur, and Norm Hansen.
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