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PM 1982 September 2004

However, when the farming systemdeviates from the conventional corn-soybean rotation, the usual divisionof costs and returns in a 50-50 cropshare lease may no longer fairly reflectthe inputs of each party. Considerthe example of an organic farm withvarious rotations of soybeans, corn,oats, and alfalfa.

As Table 2 shows, in organic systemsthe tenant typically bears a higherproportion of the costs than thelandowner. The landowner providesthe land and pays half the seed costs,but since organic farms typically donot buy pesticides or fertilizer, thelandowner does not contribute tothese costs. On the other hand, thetenant has additional machinery costsfor equipment such as a flame weederand rotary hoe. The tenant also puts inmore labor in order to manage weedswithout the use of herbicides and tohaul and spread manure or compostfor fertility.

Costs for comparable tasks, such ascombining, are usually higher inorganic agriculture because the farm

machinery needs to be completelycleaned before it is used on organicfields. Management costs are figuredas 10 percent of other costs (ratherthan the 5 percent figured forconventional production) becauseorganic production requires a highlevel of management both for cropproduction and for certificationpaperwork and recordkeeping. Also,purchased input costs are lower.

Please note that the tables in thispublication are just examples. Theactual tasks and time required forcertification can vary considerably,depending on the rotation used, theorganic experience and approach ofthe operator, and the size of the fieldsand farm.

The market price for organic beansand corn is higher than that forconventional grains. There is alsoa premium for organic hay, butmarketing may prove difficult. Thus,despite the higher labor and manage-ment costs, organic production canbe profitable for both the landownerand the tenant, if the returns aredistributed fairly.

Approximately a quarter of the cropland leases in Iowa are crop

share arrangements. This type oflease allows the landowner and tenantto share the risks and some of themanagement of the farming operation.

In the majority of crop share leasesin Iowa, the landowner suppliesthe land; the tenant supplies themachinery, fuel, and labor; andlandowner and tenant split 50-50 thepurchased input costs such as seed,fertilizer and pesticides. Generally,the yield also is split 50-50, and eachparty stores and/or markets his orher portion separately and receiveshalf of any government payments(which are usually allocated in thesame proportion as the yield).

In conventional corn-soybeanrotations, this arrangement providesa reasonably equitable division ofcosts, inputs, and returns, whichis why it is so widespread. Table 1shows typical inputs and costsfor both the landowner and tenantin a conventional crop-share corn-soybean rotation.

When the farming system deviates from a conventional corn-soybean rotation, theusual division of costs and returns in a 50-50 crop share lease may no longer fairlyreflect the inputs of each party.

Adapting Crop Share Agreementsfor Sustainable and Organic Agriculture

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TABLE 1

Division of Costs in a Conventional Corn-Soybean Rotation (one acre)Corn Soybeans

Machinery and Labor (custom rates) Tenant Owner Tenant OwnerApply nitrogen $6.70Chisel plow $10.55Tandem disk 7.95 7.95Field cultivate 7.85 7.85Plant 11.35 11.35Cultivate 6.65 6.65Spray 4.60 4.60Combine 24.50 23.65Haul and store 13.50 4.05Dry 6.75 6.75Haul to market 15.00 4.50

Nonfield Labor1.0 hour @ $10 $10.00 $10.00

Crop InputsSeed $13.78 $13.78 $11.16 $11.16Fertilizer and lime 24.58 24.58 11.58 11.58Herbicide 15.00 15.00 12.50 12.50Crop insurance 2.90 2.90 1.57 1.57Miscellaneous and interest 6.30 6.30 5.42 5.42

Land and BuildingsLand charge $125.00 $125.00Storage 9.00 9.00 2.70 2.70

Management (5% of other costs) $12.34 $8.78

Total $ per acre $198.75 $203.31 $144.86 $169.93Share 49% 51% 46% 54%

Total Rotation Tenant Owner$ per acre $171.80 $186.62Share 48% 52%

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Division of Costs in Organic Production (one acre)Soybeans Corn Oats/Small Grains Alfalfa (3 cut)

Machinery and Labor (custom rates) Tenant Owner Tenant Owner Tenant Owner Tenant OwnerHaul and spread manure/compost $30.00 $10.00Chisel plowTandem disk 7.95 7.95 7.85Seed rye (cover crop) 9.50Field cultivate 7.85 7.85Plant or drill 11.35 11.35 9.50Cultipack 8.00Harrow 4.60 4.60Disk rye 2� 15.90Cultivate 3� 19.95 19.95Rotary hoe 5.00 5.00Flame weeds 6.00Mow and condition 27.60Rake 4.40 13.20Bale 18.20 59.60Combine 27.00 30.00 25.00Haul and store 4.05 13.50 8.10 24.00Dry 6.75 6.75Haul to market 4.50 15.00 9.00

Nonfield Labor1 hour @ $10 $10.00 $10.00 $10.00 $10.00

Crop InputsSeed $23.00* $23.00* $15.50 $15.50 $7.00 $7.00 $26.50 $26.50Lime (annual cost) $3.00 $3.00 $3.00 $3.00 $3.00 $3.00 $3.00 $3.00Crop insurance 1.57 1.57 2.90 2.90Organic certification** 2.25 2.25 2.00 2.00 0.75 0.75 0.50 0.50Miscellaneous and interest 7.00 7.00 8.00 8.00 3.00 3.00 3.00 3.00

Land and BuildingsLand charge $125.00 $125.00 $125.00 $125.00Storage 2.70 2.70 9.00 9.00 7.50 7.50

Management (10% of other costs) $20.23 $23.85 $13.86 $20.14

Total $ per acre $187.30 $164.52 $232.10 $172.15 $137.56 $138.75 $194.94 $165.50Share 53% 47% 57% 43% 50% 50% 54% 46%

Average Costs for a Corn-Soybean-Corn-Oats-Hay Rotation Tenant Owner$ per acre $196.80 $162.61Share 55% 45%

Average Costs for a Soybean-Corn-Soybean-Oats-Hay Rotation Tenant Owner$ per acre $187.84 $161.09Share 54% 46%

Average Costs for a Corn-Soybean-Oats-Hay Rotation Tenant Owner$ per acre $187.97 $160.23Share 54% 46%

Average Costs for a Corn-Soybean-Small Grains Rotation Tenant Owner$ per acre $185.65 $158.47Share 54% 46%

TABLE 2

*Crop and cover crop.**Per acre fees. In addition, there is an annualflat fee per farm for certification and forinspection. Certification fees are approxi-mately $100 and inspection fees $250 but willvary with different certifying organizations.

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So how should a crop share agree-ment be structured to provide

equitable returns to the landownerand tenant in such a situation? Thereare a number of ways the agreementcan be adapted, depending on thepreferences and situation of theparties involved. For example:

� The landowner may contributea greater share of the costs, perhapsby paying the full seed costs and allcertification fees or by paying forcustom combining (even if thetenant does the combining).

� The tenant may keep a greaterproportion of the crop—perhaps55 or 60 percent, depending onthe proportion of inputs he orshe provides.

� The landowner and tenant maychoose to store and market the croptogether to minimize hauling andstorage costs for organic crops.

� The landowner may help withmanagement by handling thepaperwork for organic certificationand marketing.

Once the tenant and landowner agreeon which adjustments best serve theirneeds, they can use a spreadsheetprogram to enter the costs and returnsfor their situation and determinehow large the adjustments shouldbe. You can download a spreadsheetfrom the leasing section of the AgDecision Maker Web site at http://www.extension.iastate.edu/agdm/.Extension publications FM 1712Estimated Costs of Crop Productionin Iowa* and FM 1698 Iowa FarmCustom Rate Survey* provide averagecosts for a wide variety of farmoperations, but some costs likely willneed to be estimated by the operator,and other costs vary depending onprevailing prices. FM 1811 Survey ofIowa Farm Leasing Practices* showshow expenses typically are split incrop share leases. In addition, yourlocal extension farm managementspecialist can help with providingcost information and using a spread-sheet program.

returns. Laying out all the costs ona spreadsheet can help both partiesarrive at an agreement that reflectseach particular situation.

Sometimes factors that are notstrictly cost-based may need to beaddressed in the agreement as well.For example, if a landowner wantsto make a transition to organicproduction and the tenant isuncertain or reluctant, it may makesense to adjust the crop share agree-ment in favor of the tenant duringthe transition period. This adjustmentwould compensate for the risk ofyield declines during transition, whenthe crop is not eligible for organicpremiums (a process that normallytakes three years). Conversely, if atenant wants to make a transition toorganic production but the landowneris unsure, it may make sense to switchtemporarily to a multi-year cash rentagreement. The tenant then assumesthe yield risk during the transition inexchange for the security of a longerterm lease. Extension publicationPM 1947 Considering SustainableAgriculture on Your Rented Land*describes a variety of adjustmentsto rental arrangements landownershave made to accommodate sustain-able agriculture.

Each rental situation is slightlydifferent. Communication is the keyto establishing a fair agreement thatwill leave both parties satisfied overthe long term.

Prepared by Diane Mayerfeld, Center forIntegrated Agricultural Systems, University ofWisconsin–Madison; William Edwards, ISUExtension economist; Rick Exner, PracticalFarmers of Iowa; and Margaret Smith, ISUExtension, with help from Doug Alert, ClarkBreDahl, Tom Frantzen, and Paul Mugge,organic farmers and members of PracticalFarmers of Iowa.

Funded in part by a grant from the NorthCentral Region Sustainable AgricultureResearch and Education Program.

Issued in furtherance of Cooperative Extensionwork, Acts of May 8 and June 30, 1914, incooperation with the U.S. Department of Agricul-ture. Stanley R. Johnson, director, CooperativeExtension Service, Iowa State University of Scienceand Technology, Ames, Iowa.

File: Agriculture 1 and Economics 1-4

*These publications are available on-lineat http://www.extension.iastate.edu/pubs/fm3.htm.

Conclusion

In many cases a crop share lease bestsuits the needs of both the land-

owner and the tenant. However, forsome cropping systems and practicesthe usual division of costs and cropmay not result in a fair allocation of

. . . and justice for allThe U.S. Department of Agriculture (USDA)prohibits discrimination in all its programs andactivities on the basis of race, color, national origin,gender, religion, age, disability, political beliefs,sexual orientation, and marital or family status.(Not all prohibited bases apply to all programs.)Many materials can be made available in alternativeformats for ADA clients. To file a complaint ofdiscrimination, write USDA, Office of Civil Rights,Room 326-W, Whitten Building, 14th andIndependence Avenue, SW, Washington, DC20250-9410 or call 202-720-5964.

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