A new global study finds that, despite lower yields, a target market for whom cost is not really an object makes organic agriculture more profitable for farmers than conventional agriculture.
Though it is already a $100 billion Big Ag industry in its own right, organic agriculture currently only accounts for one percent of agriculture globally. Those higher profits mean there is still plenty of room to expand. That's good news for organic farmers and customers who are willing to spend more, and it is unlikely to damage food security for poor people who will still be able to buy the same food without the organic process.
Though the perception is that organic agriculture does not care about profits, the reality is there is no sustainability without profitability. To bolster support for their idea that organic food's high margins mean it can feed more people than just wealthy people in the developed world, the authors of a new PNAS paper analyzed dozens of studies comparing the financial performance of organic and conventional farming. They wanted to see if organic farmers could make enough money that the organic market could continue its aggressive expansion plans.
They found that organic price premiums give farmers an incentive to pay the fee for the sticker and replace synthetic chemicals with organic chemicals. The authors suggest that government policies could further boost adoption of organic farming practices and ease the transition for conventional farmers who want to take advantage of the wealthier market for organic foods.
The actual premiums paid to organic farmers ranged from 29 to 32 percent above conventional prices. Even with organic crop yields 18 percent lower than conventional in the studies they analyzed, the break-even point for organic agriculture was 5 to 7 percent. And that is unlikely to change. The organic market has been around since just after World War II but in the last 40 years, the much higher profits for organic food have remained steady, even as the profitability of conventional food has varied as modern science has made the playing field more level across different climates and qualities of farmland.
The meta-analysis of 44 studies included costs, gross returns, benefit/cost ratios and net present values – a measure that accounts for inflation. The authors believe this is the first large-scale synthesis of economic sustainability of organic farming compared to conventional.
Clearly past performance is not an indicator of future outcomes – with Kroger and Wal-Mart selling organic food, we are seeing a major shift to organic production, which will result in lower prices due to increased supply or due to increased competition to sell produce that is going to expire quickly.
But for now, organic premiums offer a strong incentive for farmers who care about maximizing their incomes and so want to transition from conventional to organic farming
Citation: Crowder, D. and J. Reganold. 2015. Financial competitiveness of organic agriculture on a global scale. Proceedings of the National Academy of Sciences. June 1, 2015, doi: 10.1073/pnas.1423674112.