Premium price of organic more than compensates for yield loss

07-Jun-2015 - Last updated on 08-Jun-2015 at 13:11 GMT

New research showing organic agriculture is significantly more profitable than conventional should reassure farmers who are considering switching to organic but are nervous about financial loss during the three year transition in which they will have lower yields but cannot charge premium prices for their crops.

Farmers who make the transition from conventional to organic can expect to receive median premiums of 32% for their crops and 29% for their overall farming system compared to what they received farming conventionally, according to the study published June 1 in the Proceedings of the National Academy of Sciences.

This is vastly more than the estimated premium of 5% to 7% needed to “break even” with the profit loss associated with a 10% to 18% decrease in yield from organic verses conventional farming, according to the meta analysis of the financial performance of 55 crops grown in five countries over 40 years.

“The fact that organic premiums are significantly higher than those premiums needed to break even with conventional agriculture provides substantial financial incentives for organic growers to go through the three years of transition expense, acquire certifications and establish buyers and markets,” write the study authors David Crowder and John Reganold from Washington State University.

They acknowledge that the transition period “is often reported as the most difficult time financially for organic farmers,” and appears to be a major factor limiting the amount of cropland farmed organically – currently estimated at 1% of all cropland.

Maximizing cost-benefit ratios

A closer analysis of the data also reveals that some organic crops are more profitable than others. Namely, cereals, fibers and oil crops have the highest benefit to cost ratios, whereas forage, vegetables, meat and dairy have the lowest.

The study also found the organic-to-conventional financial performance was higher when organic crops were grown longer or in more diverse rotations in annual systems and leguminous crops.

Organic agriculture becomes even more profitable when the price of the negative impacts of farming, such as soil erosion and nitrate leaching into ground water, are taken into consideration, the study found.

For example, it notes in New Zealand the total economic value of biological pest control, soil formation and the mineralization of plan nutrients in organic fields is 1.5 times higher than in conventional fields.

Finance is only one component of sustainability

Establishing the financial viability of organic farming and encouraging farmers to make the switch is only one part of making agriculture sustainable, the authors note.

“Equally important is enhancing the environment, producing ample crop yields of high quality and contributing to the well-being of farmers and their communities,” they say.

The acknowledge that conventional farming wins when it comes to yield, but say it is not worth the cost of the other sustainability goals and that the quality of organic crops is usually higher than that of conventional.

They also note that organic farming tends to be more labor intensive, resulting in more jobs for local communities. The higher cost of labor is off-set by not needing to buy as many chemicals and other necessities related to conventional farming, the study adds.

Given that the benefits of organic ostensibly outweigh those of conventional, the authors encourage policymakers to develop policies that support farmers converting to organic, especially during the transition period, and then base the value of food on health benefits, food security and ecosystem services so that consumers could “choose products that push agriculture in a more sustainable direction.”