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Summary

To assess the importance of factors important in the adoption of organic agricultural practices in Australian cereal-livestock farming, a comprehensive multi-region, multi-commodity linear programming model of the Australian cropping sector was developed. The model contains detailed landuse, costs and financial data for 16 commodities for conventional and organic producers in 11 regions.

The primary conclusion from this analysis is that, following even a 30 per cent adoption of organic farming practices in Australian broadacre cropping industries, total farm cash receipts for the sector are estimated to be reduced by just under 3 per cent or $150 million. Those farmers who remained conventional would, on average, enjoy slightly higher incomes ($1,000). Conventional farmers who converted would need to forego an estimated $11,400, and the 1 per cent of the initial group of organic farmers would lose $4,400 because of increased competition. The value of crop production would be reduced around 15 per cent, with the value of inputs used in production, particularly pesticides and fertilisers, declining somewhat more. Labour use on farms remains relatively unchanged.

With the use of the model, several factors are identified as important contributors to the changes in cost, production and farm returns. The main factors are changes in input use, rotations, yields and premium prices. The impacts of changes in quantities of inputs demanded and outputs supplied on output prices and net farm receipts were found to be rather moderate, at least given the assumed price responsiveness.

The analysis indicates that the change in sectoral input use varies with the input, with a large drop in pesticide use, and the least effect on labour. Some of the demand for synthetic fertilisers, such as superphosphate used in conventional agriculture, changes to forms of fertiliser (such as rock phosphate) allowed in organic farming. Part of the decline in fertiliser use is attributable to a switch from cropping to pasture-based activities. Labour and machinery use are the main inputs not deducted here. Labour use in the two systems was similar, and will therefore not change the relative figures for farm returns net of all costs. However, if organic farming allows lower depreciation costs under similar conditions of risk than conventional farming, it would increase the returns to organic farming relative to those of conventional farming as shown in this paper.

Perhaps the most important input is land. With 30 per cent of farmers adopting organic practices, there is an estimated decrease in area cropped of over 10 per cent, which will then be under pasture. It is assumed here that farmers would not move onto, or away from, marginal land. Landuse is something to consider in the context of declining soil quality under present agricultural practices. If livestock production involves fewer negative externalities than crop production, a widespread move towards organic agriculture would have benefits from this perspective.

Changes in output are largely determined by the stringent assumptions for rotational requirements and yield performance. Changes in output levels accompanying widespread adoption of organic agriculture influences prices, but to a limited extent only, reflecting Australia's position as a price taker on international markets for many of its agricultural goods. Rotational requirements restrict the responsiveness of output to changes in prices, and thus the main impact of price changes is on net receipts, even for organic producers.

It should be noted that these conclusions would not hold if farmers globally switched to supplying the organic markets. A more significant rise in conventional product prices would be expected. Such a move would likely reduce surplus production problems that have been the focus of agricultural policy in the European Union and the United States over the last 20 years and reduce export subsidies. In addition, it would improve local environments without compromising global food security. However, a more detailed global study would be required to assess these effects.

For organic producers the net cash receipts per farmer are estimated to be 10 per cent less than those of conventional farmers with negligible adoption rates of organic management. This increases to 17 per cent when 30 per cent of farmers are organic as a result of the absence of a premium price on output.

From a policy perspective there may be some merit in supporting a move towards organic agriculture. The reduction in sectoral income is relatively small, and the negative externalities resulting from organic farming are bound to be less than those related to conventional management in areas such as human health, land degradation and water quality.

A limitation of this work is the treatment of livestock as one industry. A movement into increased sheep production may put downward pressure on prices of wool, one of the few commodities where Australia can influence world prices. An increase in meat production would allow Australia to take advantage of the increasing demand for animal protein in Asian markets. It has been assumed here that farmers in the cropping sector would maintain the same herd structure (of beef, wool and meat producing sheep).

Several refinements would benefit the existing model. The physical and financial data for conventional farmers used in this analysis is of good quality, yet that for organic farmers is somewhat dated. Information on conventional yields is available by commodity and region, yet organic yields are assumed to be a given proportion of conventional yields in most cases. Better information on the potential organic yields for the different crops in different regions would add to the credibility of the results. Likewise, little is known about the price premium. This is likely to vary for different commodities, rather than moving together for all commodities as assumed here. Attention to the growth of the market could be worthwhile in helping farmers in different cropping industries decide whether to convert to organic agriculture. Yields for different crops, responsiveness of cropping patterns to changes in prices, and machinery use are but a few examples of areas where better data on current organic farms is needed if appropriate policy decisions are to be made.

Finally, the fortunes of Australian farmers are generally more influenced by what happens overseas than domestically. Analysis of the organic markets overseas and the movement out of conventional production abroad would be important factors influencing the export revenues of conventional and organic farmers alike in Australia. Importantly, whereas organic production leads to an increase in livestock output in Australian predominantly extensive system, this may not be the case in Europe, because organic management principles generally discourage overly intensive livestock operations.