Organic advocates claim that organic foods tend to be higher in beneficial nutrients and lower in risk factors such as pesticides. A few organic critics claim that organic food exposes consumers to more biological contaminants since manure is commonly used in organic systems.
So which side is right? It’s less of a question of who is right and wrong because there are some truths in both sides. Food can get contaminated; no matter if grown conventionally or organically, though organically-grown foods are not at on higher risk. Organic systems do have lower pesticide exposures for both farm workers and consumers. However, the FDA sets limits on allowable levels of pesticides in conventionally grown foods that are intended to protect consumer health. Let’s dive deeper into these facts regarding the economic effects of organic food.
In this article, Pritish Kumar Halder describes some interesting points related to Organic Food.
Concerning issues of personal health and food safety
Organic foods have lower pesticide residues than conventional foods
Packaged and processed organic foods have fewer additives than conventional foods
For people who are sensitive to certain food additives this attribute of organic food can provide a health benefit. See this article on Packaged Organic Foods done 2019-2020.
Organic and conventional foods seem to be about equally susceptible to contamination by pathogens.
A few critics of organic agriculture have claimed that because they rely on manure as a key source of soil fertility, organic foods can be expected to be more likely to carry pathogens. However, studies comparing microbial contamination of organic and conventional produce do not show consistent differences (Microbiology of Organic and Conventionally Grown Fresh Produce, Batalha et. al, 2016).
The profitability of Organic agriculture in an enterprise
Organic agriculture can be profitable for farmers, although the transition period is often financially difficult. The profitability of an enterprise is the product of the:
- Costs of production,
- Yield, and
How does organic agriculture affect the costs of production?
In general, organic farmers rely on resources recycled on-farm and on management practices rather than on purchased fertilizers and pesticides. On the other hand, those inputs that organic farmers do buy tend to be more expensive than conventional inputs. Let’s look at some typical production costs one by one.
Land is often the largest single production expenditure, especially for field crops. In theory, certified organic land might command a premium price. In practice, it does not, at least not yet.
Fertilizer Organic practices such as including legumes in the crop rotation and applying manure or compost eliminate most fertilizer costs, other than lime. Overall, fertilizer costs tend to be lower on organic farms.
Seed Certified organic seed is usually more expensive than standard seed. So seed costs tend to be higher for organic farms, but seeds usually account for a small percentage of a farm’s overall costs of production.
Feed costs are a significant input on livestock farms. For those farmers feed costs tend to be low; but for organic farmers who purchase a lot of feed, those costs can be very high. Total feed inputs for organic farmers are on average 1.5x higher that their conventional counterparts. See Organic Costs and Returns: Milk Production, USDA ARMS
Pesticides Organic farmers are not allowed to use synthetic pesticides, per USDA Organic rules. However, they are allowed to use inputs that are registered on OMRI (Organic Materials Review Institute).
Machinery, fuel, repairs, and machine hire can be slightly higher on organic operations. Conservation tillage and carefully integrated management can reduce trips over the field and associated fuel costs, and organic farms do not require pesticide applications. Many organic farmers manage machinery costs by being excellent mechanics who build or adapt and maintain their own equipment.
Labor needs on organic farms are usually greater than on comparable conventional farms. Full-time organic grain farmers are less likely to need to hire additional labor at planting and harvesting than their conventional neighbors.
How does organic agriculture affect prices?
As any grocery shopper knows, organic foods usually cost more. Part of this added cost comes from higher processing costs for organic foods and from the distribution inefficiencies of a smaller food system. (Despite their rapid growth and high profile, organics still account for only 6% of total US food sales). So if some production costs are higher and others lower, yields are the same or lower, and price is higher, what is the bottom line for farm profitability in organic agriculture?
- During the transition period, when a farm has all the costs of organic agriculture, reduced yields, and no price premium, farms are usually less profitable than conventional farms.
- However, once the transition is complete, yields generally improve and the farm products can get a significant price premium. For these reasons, established organic farms are often more profitable than their conventional counterparts.
- As with conventional farms, management, timing, and regional cost and market variations are key to profitability.
The US has one of the most highly subsidized agricultural systems in the world. The US Department of Agriculture has several conservation payment programs, some of which can benefit organic farmers. For example, under the Environmental Quality Incentives Program (EQIP) in Wisconsin, Iowa, and other states farmers can apply for funds to help cover some of the costs of organic transition.
What is the state of the organic market in the US today?
According to the Organic Trade Association, US organic food sales have grown between 9 and 12.8 percent each year since 2011, while total U.S. food sales over this time period have grown in the range of only 2 to 4 percent a year (OTA Press Release, 2020).
What value does the consumer get for the added cost of organic?
According to market research, consumers buy organic foods
- For their personal health
- Because they think it tastes better
- Because of food safety concerns
- To help the environment
- To support other values such as animal welfare and family farms
“What motivates consumers to buy organic foods? An empirical study in the United States” (Gundala and Singh, 2021).
The shifting economics of organic food
The US Department of Agriculture’s Economic Research Service recently posted data on the price difference between organic and conventional options for 17 different types of food. On the low end, organic spinach costs just 7 percent more than conventional spinach (on average). But organic eggs cost 82 percent more:
In practice, these rules can encompass a wide variety of farmers and methods. But by and large, the restrictions tend to increase costs. Organic produce has to jump through the fewest hoops, so the premium tends to be lowest for things like spinach or apples. The premium is higher for processed food, and highest for animal products.
What’s really interesting, though, is how this premium is changing over time.
Some organic products are getting cheaper. Others, not so much.
The USDA also notes that the organic premium for certain products — like coffee or spinach — has shrunk pretty significantly in the past decade. Back in 2004, organic spinach cost 60 percent more. Today that’s down to 7 percent:
For crops like spinach or coffee, the organic option typically costs more. Early on, organic produce farmers simply paid more for non-synthetic herbicides and insecticides. More recently, many organic farmers have been switching practices — harnessing techniques like integrated pest management and making better use of insect predators — to get this cost differential down.
Eggs and milk are a different story. The organic premium for milk and eggs has fluctuated quite a bit — and actually risen since 2008. (It’s not shown on the chart, but the premium for yogurt has actually increased steadily since 2004.)
Going forward, the USDA notes that the organic premium could very well shrink further for certain products — as, say, US organic farmers take advantage of imported feed or economies of scale take hold.
If organic farmers find a way to cut costs or boost yields, then conventional farmers can just copy them. But the reverse isn’t always true. (Plus, organic farmers have to go through the lengthy and costly certification process.)
Despite the higher cost, organic sales keep soaring
For the most part, charging a premium hasn’t been a problem for the organic industry, because plenty of consumers are happy to pay more for organic fare. As the USDA points out, organic sales have grown more than 10 percent per year, rising from $11.5 billion in 2004 to $37 billion in 2015.
Organic food now makes up a sizable chunk of the market for many products. Organic spinach was 40 percent of all spinach sales in 2010:
Many people argue that the higher profitability allows organic farmers to pay more attention to quality. On the flip side, a great many scientists remain skeptical that organic fare is any healthier or more nutritious than conventional food.
ECONOMICS OF THE ORGANIC FOOD INDUSTRY IN FLORIDA
About 73% of conventional grocery stores and 100% of natural food stores carry organic products, accounting for approximately 2.5% of total food sales in the United States (Organic Trade Association 2006).
MARKET OUTLETS FOR FLORIDA ORGANIC PRODUCE
Organic producers have two classifications of marketing channels to consider—direct markets and indirect markets. Knowing the advantages and disadvantages of each allows producers to make wiser decisions for their companies.
DIRECT MARKET OUTLETS
There are many advantages and disadvantages associated with direct markets. This approach normally benefits both producers and consumers because producers receive larger profits while consumers save money by purchasing premium organic products at competitive prices. It gives producers the opportunity to educate customers about organic foods and helps cultivate long-term relationships between with producers and consumers.
Opportunities in direct marketing to receive higher net returns also have disadvantages. More time, effort, and knowledge are required from producers to produce organic foods. Establishing a positive image and goodwill with customers should be a top priority for producers using direct marketing.
With the rising global demand for organic foods, utilizing indirect marketing channels with the capacity of reaching multiple markets may provide new financial opportunities for organic farming operations. Using indirect markets for sending products abroad means meeting the organic standards set by the receiving countries and providing evidence of organic certification, so it is important to select a certifying agency with experience in international markets. Figure 1 is an example of a flow chart for indirect markets.
Conventional farms tended to have higher yields and were best at reducing erosion. Organic farms, by contrast, tended to have more fertile soil, used less fertilizer and herbicides, used less energy, locked away more carbon in the soil, and were more profitable for farmers.
That said, Haspel’s smart conclusion was that a truly sustainable agriculture system would likely make use of the smartest practices of both organic and conventional farming, rather than get locked in an endless dispute about which one was “better.”
Organic agriculture can be profitable for farmers, although the transition period is often financially difficult. The organic sector accounted for less than 3% of total food sales in the US in 2005, but growth is strong and is projected to remain well above 10% per year.
Until passage of the Organic Foods Production Act in 1990, there was no support at the federal level and extremely little support in the states for organic agriculture. This situation is beginning to change, but government support for organic agriculture remains disproportionally low in the US.
The question about organic agriculture is no longer whether it can produce or be profitable but what direction it will take as it grows and whether it can address social as well as environmental aspects of sustainability. Want to learn more? Contact with Pritish Kumar Halder, who have some awesome resources to explore your knowledge.
Composed by: Suma Sarker