What are the key issues faced by organic producers?
In: Organic Agriculture - Sustainability, Markets and Policies.
Proceedings of an OECD Workshop held in
23-26 September 2002
Eco Landuse Systems
E-mail:els.wynen@elspl.com.au
Note:This article was presented at the OECD workshop in
Concerns facingorganic producers can be divided into two main groups, production andmarketing. In the early days of the organic industry, the production problemsof farmers were emphasised, and research topics were often concentrated onsoil, pests and diseases. More recently, as the industry matures andinternational trade of organic products has grown, the importance ofmarket-related issues has come to the fore. On the one hand, the need forharmonisation of standards and acceptance of equivalence for market development— which would facilitate international trade — is recognised. On the otherhand, a more serious push towards domestic consumption seems afoot, which wouldadvantage domestic farmers but disadvantage producers in exporting countries
1.Introduction
The aim of this paper is to consider developments in the organic market fromthe perspective of producers. What are the key issues for producers at present,and what are they likely to be in the future? What are the expectations ofproducers regarding organic agriculture? What are the trade issues arising fromdomestic policy measures to develop organic products, including impacts ondeveloping countries?
Many organic farmers all over the world face similar technical, economicand social problems. These are identified in the following section. However,answers to these questions depend considerably on where the organic farmer islocated. The geographical location of a farmer is important because soil andclimate differences influence input requirements, yields and total farmproduction capacity. Different policy approaches are then discussed, looking atthe impact of policies on those producers for whom they are beneficial andthose organic farmers in other countries that feel the consequences of thosepolicies.
2. Concerns facing organic farmers
The aim of surviving or thriving as an organic farmer can beaccomplished in many ways. One component of survival is the financial viabilityof the farm. Farm returns are influenced by input use, total production,product prices and market access, that is, production and marketing issues. Asummary of issues is provided here to serve as a background for the policyissues, discussed in the next section.
Inputs
In essence, organic farmers manage soil fertility (often calledcrop nutrition by conventional farmers) and combat pest problems (includinginsects, weeds, fungi, nematodes and diseases) in a different way thanconventional farmers. Management methods may include, for example, changes ininputs (crop varieties and livestock breeds; nutrients; predators), rotations(more and different crops and livestock), and timing of activities (plantingdates and harvesting dates).
Thus, one area in which organic farmers encounter problems inthe production of crops and livestock is in the maintenance of soil fertilityand avoidance of pest attacks, while minimising the environmental effects oftheir actions. The exact nature of the soil, pest and environmental issues isgeographically determined. For example, in a climate where frequent smallamounts of rainfall occur, weeds are more likely to be a problem, while warmand humid conditions are more conducive to fungi or pest problems in crops andlivestock. Dealing with these may require a change in use of other inputs, suchas labour and capital.
It is therefore not surprising that because relatively fewfarmers use organic practices, many of the complaints by farmers are centredaround lack of knowledge about organic management methods or about inputs(where to purchase and the efficacy of the available products). In addition,inputs may be more expensive due to extra transport and handling charges forthose inputs not commonly purchased (Wynen 1992).
It is often assumed that more labour is needed in organic thanin conventional agriculture, but this depends on the industry and country.Higher values for labour on organic arable and mixed farms are reported in
Studies on differences in capital values of land used fororganic and conventional production are more difficult to find. As land valuesare determined by expected returns, there should not be a large differencebetween the two types of farms. Organic farms may require additional capitaldue to, for example, changes in farm lay-out (fencing), storage, change inlivestock numbers and in machinery. As these investments are needed when convertingto organic farming, it is especially the farmers in transition who carry thisburden.
Another issue, sometimes discussed by farmers perhaps more inthe past than presently, is the moral support needed to take the step towardsorganic management while there is social pressure against adopting thetechnology (Wynen 1992).
Outputs
Nutritionaland pest constraints under organic management can result in yield decreases ascompared with conventional agriculture. However, this is by no means always thecase, especially not in areas where conventional agriculture is practisedrelatively extensively, such as in the
Thevariability of yield and financial returns has been a topic of study indeveloped countries. Little evidence has been found that the management systemis a major factor in the degree of yield and financial variability, althoughsome studies show less variability under organic management (
Thetendency towards mono-cropping in conventional farming is reversed on an organicfarm. That is, less financially-rewarding production may be included in therotation. This affects the total farm production, and has a negative effect onthe gross returns.
Farm returns
Fromthe producers’ point of view, net returns to farming are an important, albeitnot the sole, consideration to continue farming. These net returns are made upof gross returns for the whole farm minus input costs. The gross returns aredependent on total production (that is, yields of individual enterprises and rotationpractised on the farm), product prices, and farm subsidies.
Althoughthe level of prices influence demand for the product, it is the relative pricesof conventional and organic products that are of importance in consumerdecisions. This means that there are two prices that are of importance. One isthe retail price of the organic product, which is only in part (depending onthe product) influenced by the farm-gate price. As long as organic productionis small, the off-farm costs of marketing the product (including cost oftransport, insurance and distribution) will be high relative to those inconventional products. This extra cost will need to be recouped by the traders,resulting in high retail prices. However, in markets where traders havemonopoly powers, the retail price can also reflect, at least in part, monopolyrent.
Theother important price is the retail price of conventional products. Externalcosts of conventional farming practices (such as problems with water quality,people’s health, biodiversity) are often higher than with organic farming.
Anotherway in which (farm) prices can be reduced is by subsidies for organicproduction. They are provided in some European countries. The effect may bethat the cost of production is lowered, and that the farmer can accept lowerproduct prices in order to survive. This can be passed on to the consumer.
Toobtain price premiums, organic products need to be certified as genuinelyorganic. In some countries certification is rather straightforward, as theinfrastructure is in place. In others, any certification and especially onethat is acceptable to enable international trade, can be a major problem, andrather costly.
Anotherissue is the availability of the market. Campaigns in favour of “domesticconsumption” can enlarge the market for some producers, and restrict access forothers.
So,in summary, separatemarketing can be rather expensive for several reasons, including the low volumeof product, the possibility of monopoly power in the trading sector and therequirements of a certification system. The taxing of pollution-causing inputsin conventional farming, and subsidies for organic farming can reduce thedifferences in consumer price for organically and conventionally grownproducts. Costs of certification to secure the possibility of (international)sales, possibly through international certification, can be a major problem(and very costly). An additional cost for producers in exporting countries isthat they may have to fulfil the requirements (and organic standards) ofseveral countries simultaneously. A separate problem for those countries isthat the organic movement, especially in developed countries, may be focussedon local consumption, thus making market access for exporting countries moredifficult.
Producer constraintsin developing countries
A list ofproduction constraints for developing countries closely resembles the problemsapplicable to organic farmers in general (Twarog and
· technical know-how (due to few trainedprofessionals in the field);
· lack of organic production inputs(composting materials, biopesticides,
· lack of labour;
· little research and development(varieties and production methods);
· conversion method, with reduced yields,may be a larger obstacle than in developed countries;
· infrastructure problems (
· limited market information and channels;
A further issue of relevance to farmers who do not own theirland, possibly more frequently the case in developing countries, is investmentin soils. In organic agriculture, the emphasis is on soils, where improvementsare seen as essential for nutrient and pest prevention management. In thosecountries where farmers own their land, or where leasing arrangements are suchthat land cannot be taken away from the user easily, investment in the landbase is not a problem, as the returns are for the investor. However, where thefarmer has no land-tenure, there is no incentive for the lessee to improve soilquality. Indeed, there may be a disincentive, as improvement of land qualitymay be directly linked to the land being withdrawn from the user.
Somefurther thougths
When listing producerconstraints, it is important to realise that some issues relate to the scaleand maturity of the industry, and will be resolved as the industry grows. Thatis, these problems are not intrinsic to the organic system, even though farmersmay experience them as problems for the time being. For example, lack ofinformation about organic practices is often mentioned as a major problem toconvert to organic agriculture. Whereas this may be a problem for manyprospective organic farmers at present, if future generations on organic farmscontinue to farm organically, a lot of the knowledge will be automaticallytransferred between generations — and to non-organic neighbours. Anotherexample is the market for both inputs and outputs. There is no reason tobelieve that the markets for organic inputs, at least the physical ones, willbehave differently from those operating for conventional farmers. The costs ofprocessing and marketing organic produce should also decrease per unit ofproduct, as the number of organic farmers increases. An increase in the numberof traders could reduce the scope for monopoly rents. Finally, m
3. Policies: good for some, bad for others
Justification
Some countriesrealise that there is a role for government to play in the expansion of organicagriculture. As negative externalities in conventional farming are larger thanin organic agriculture, they have decided that at least some governmentinterference favouring organic agriculture (or adjusting the balance, somewould say), is justified.
Inputs inorganic agriculture often possess more of the public goods characteristic— a justification for government involvement — than in conventionalfarming. Changes in rotation, crop and livestock mixtures, biological processesinvolving predators and parasites etc. take the place of pesticides andfertilisers — private goods for which companies are willing to do researchand advertising. Therefore, without government intervention, obtaining anddispersing knowledge about the most efficient use of many of the practices inorganic agriculture will be carried out at a sub-optimal level. Also thedevelopment of a separate market, requiring standards and certification bothfor the domestic and international market, has public good aspects, anddeserves government attention. Policy measures are therefore usually in theareas of subsidies for organic farmers, taxes for conventional farmers,research and extension, and product certification and harmonisation.
The last policymentioned in this section refers also to markets. However, it is mainly aprivate initiative to influence the market availability for domestic producers.
Level of support
Agriculture iscarried out rather intensively in many European countries, and populationdensity is such that any negative effects of such farming would perhaps be feltearliest and most intensively by inhabitants/consumers in those countries. Inaddition,
In the
Althoughorganic growers in other countries may well receive some support in one form oranother, it will rarely be to the extent provided in
Subsidies for organicgrowers
Organic farmsubsidies have a number of direct and indirect effects. First of all, theyallow farmers to sell their products cheaper than they otherwise could havedone. This will affect the number of consumers who are willing to buy theproduce, a very important aspect in building a market. At the same time, it islikely to affect the input prices into the production process, especially ofland. This is the case because there is a conversion period for organicproduction, i.e. a threshold toentry. However, the price is not likely to rise too much, as other land can— in most cases — readily be converted to organic farming.
In countrieswhere conventional farming is subsidised, (unintended) negative effects onorganic agriculture by these general subsidies can occur. For example, due to adifference in crop mix on organic and conventional farms, EU policies (whichpay different amounts for different enterprises) can deliver higher subsidiesto conventional farms than to organic farms of the same size. This was thecase, for example, in
A second classof effects is created towards producers who do not receive subsidies. If theyhave similar costs to producers who receive subsidies, they will become lesscompetitive, and may go out of business. This was recognised in the
Farm subsidiesin general can lead to inefficient use of resources, in organic agriculture asin conventional agriculture. In other words, subsidies in one country, byaffecting the price level and the quantity of production (number of farmers whocan stay in business), affect farmers in other countries. This can distort thetrue picture of efficiency in resource use between organic farmers in differentcountries: bad news from an environmental perspective.
Theinternational organic movement presses for subsidies for organic agriculture,as this is its role. But these subsidies may have an indirect effect oflimiting production in non-subsidised areas. It is important to realise thatorganic farmers in those countries are equally farming according to organicpractices, and deserve as much support by those who are concerned aboutminimising the world’s use of resources in the quest for agriculturalproduction. A more appropriate approach may therefore be to target theexternalities generated in conventional farming.
Taxes on conventionalfarming methods
The marketsolution to the problem of ensuring that conventional farmers take moreresponsibilities for the externalities they cause is, in theory, reasonablystraightforward, e.g. taxing the useof fertilisers and pesticides such that producers only use the amount of inputthat causes damage equal to the taxes paid. Scandinavian countries inparticular have implemented such policies. For example,
If theintention of taxes is to make farmers carry the burden of the total cost of theinput, the practicalities of a tax are not quite clear. As fertilisers andpesticides have different effects on different soil types and under differentclimatic conditions, the use of the same amount of the same input does notcreate the same environmental damage. Making each farmer pay their particularcost is therefore difficult, and an assumption of average costs in costcalculations may therefore be most appropriate.
Research andextension
Lack of fundingfor organic research and extension is often pointed out, and the direction ofresearch to promote organic agriculture has also been the topic of discussion.
Very littleeffort has gone into analysing where the limited funding could best be spent toreach the goal of expanding organic agriculture (Wynenand Vanzetti 2000). One area that has been recognisedas worthy of attention for example is that of consumer education, for examplein
Research intomore efficient use of inputs into organic farming will result, in the long run,in lower farm-gate prices, not in higher returns to farming. This means that,in an indirect way, fewer problems with production techniques result indecreased production costs, which are then passed on to the consumers.
Standards,certification and harmonisation
Productcertification is an essential part of the viability of organic producers, andis important in international trade. Some countries,for example in
Despitethe organic movement’s professed interest in local consumption of organicproducts (see below), there are a number of countries where exports are andwill be of great relevance. In developing countries, export markets areessential for income generation, especially where premium prices can be securedin developed countries and less so domestically. In other cases, such as
In order tofacilitate international trade, harmonisation of standards and certificationover the world is needed.
Thetwo countries with the largest demand for organic produce, the EU and the
EUregulations regarding imports have been in place since the early 1990s and aresummarised here to provide a picture of the constraints for countries wishingto export to the EU. The EU allows three methods of import from third countries(Commins and Kung Wai2002). First of all, the EU established a “third country
The
For producers in many developing countries, andalso in developed exporting countries, these requirements mean that export oforganic produce may not be easy. Many developing countries do not have adomestic organisation that can carry out the required certification.Certification by international certification bodies then becomes essential,which is likely to be expensive. This may be an insurmountable problem,particularly for small-holders in developing countries. The need to comply withdifferent standards in different markets would add to the cost of productionand marketing. In addition, time delays, due to the requirement ofdocumentation of each consignment, may well inhibit exports.
Market availability
Althoughrumblings about local production and consumption have been heard for a longtime in the organic movement, they have increased in intensity over the last fewyears. The idea behind it is that local consumption would cut down on transportcosts, and therefore be better for the environment (Geier 2001).While organic organisations may campaign for consumers choosing locallyproduced food,
4. Conclusions
Concerns facing organicproducers can be divided into two main groups. One is in the area of production(inputs with their effects on yield and total production) and the other ismarketing (product prices, cost of marketing and market availability). In theearly days, the production problems of farmers were emphasised, and researchtopics were often concentrated on soil, pests and diseases. More lately, asinternational trade of organic products has grown, the importance ofmarket-related issues has come to the fore.
Direct subsidies toorganic farming, to aid conversion or to compensate for more environmentallyfriendly practices, and other forms of subsidies, have been obtained in somecountries but not in most. These cause advantages for some (including producersand consumers) and disadvantages for others (producers in exporting countrieswhose competitive edge decreases). Decreases in consumer prices are essentialfor a growth in the organic market, which will partly happen through increasedproduction and maturity of the market. A further realisation is the need forharmonisation and equivalence in agriculture. Serious issues regardingnon-tariff barriers (such as time delays due to the need for documentation forimporting purposes) are raised. A push towards domestic consumption seemsafoot, which could also be seen as a non-tariff barrier: organic producers insome developed countries protecting their patch against products from exportingcountries.
Rather than dividing the organic movement throughpromoting policies that are good for some and bad for other producers, a moreuseful approach for all organic producers may be to encourage governments toinitiate polluter-pays policies. A tax on pesticide and fertiliser use is onesuch example in agriculture. Though several countries in
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