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Economics of Organic Top Fruit Production (OF0305)

Firth, Chris (2005) Economics of Organic Top Fruit Production (OF0305). The Initiative on Organic Research (IOR), Henry Doubleday Research Association (HDRA).

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Online at: http://www2.defra.gov.uk/research/project_data/More.asp?I=OF0305&SCOPE=0&M=PSA&V=EP%3A200

Summary

Of all the organic food sectors in the UK, top fruit is one of the least developed. Despite strong consumer demand and high prices for organic fruit there are, at present, only a handful of commercial organic dessert apple and pear growers. One of the barriers to conventional growers converting to organic production has been the lack of robust data on the economics of organic fruit growing. Therefore the overall aim of this study and benefit to the sector was the collection and assessment of economic data from commercial organic top fruit (dessert apples and pears) farms for three seasons (2001-2003) in order to determine its economic feasibility. Data was collected from fruit growers and processed according to Farm Business Survey techniques and was also analysed on a pence per kg basis, a full cost accounting technique developed for analysing top fruit crops.
Over the past few years there has been a rapid growth of both the market for organic top fruit, and an increase in the area of land converted to organic top fruit production, although much of the latter has been of older cider orchards. The market for organic top fruit, with a retail value of £67 million and 7% share, is one of the largest organic product groups in the organic market. In 2003, 1187 hectares of organic top fruit were grown, with an estimated retail value of £6.7 million. UK-produced organic top fruit supplies 10% of the market, with the remainder being imported, compared with 21% in the conventional sector. Although growers had previously been reluctant to convert to organic production due to the high costs of conversion, a small number responded in the late 1990’s to the higher prices achievable, supermarket pressure, and to the increasing level of government subsidies available.
The on-farm economics of organic apples and pears was largely determined by the level of yields of fruit for the fresh market, prices and costs of production. The greatest variation in income from individual orchards, varieties, farms, and years was caused by differences in the total yield and the proportion of the yield, known as ‘gradeout’ in the fruit industry, which reached Class I & II (this was typically 50-65% for apples and 50-85% for pears). Prices were relatively stable.
Yield variations were caused by the UK climate, with its variable spring and summer weather pattern, the weather also indirectly affected yields through its influence on pest and disease levels, especially in 2002. Organic apple yields were found to be 50-80%, and pears 25-55% of those in conventionally managed orchards. Many of the surveyed orchards contained a large proportion of varieties such as Cox, which are less suitable for organic production systems. Only 20% of the varieties in the survey farms had been specifically planted for organic purposes.
Where fruit was processed into juice and bottled on the farm, this proved a very valuable way of maintaining total farm income. Across the various farms costs were fairly similar. The largest proportion of costs, were for marketing (30%) and overhead costs (44% -other labour, machinery, rent, orchard depreciation and general fixed costs). Top fruit growing is very labour intensive and labour accounted for 30% of on-farm costs. Total organic costs per hectare were similar to conventional ones.
Average net margins for apples (£455/ha, 5p/kg) gave a 7% margin over costs, and pears (£315/ha, 5p/kg) 5% for the years 2001-2003. A 15% rate would have been regarded as very profitable. At a gross margin level the organic crops were higher than conventional equivalents. With average current prices and costs a breakeven point can be achieved at 7t/ha for apples and 5t/ha for pears. However, the averages fail to show the large range of results that occurred, and that during the survey period nine apple and pear crops (a crop includes all varieties on an individual farm), which represented 43% of the crops grown, made a loss.
As costs were fairly similar, the variation in net margin was directly related to the variability in yields. Some farms did notably better than others and this is in part due to their more favourable sites for fruit growing e.g. better soils. It is of some concern that profitability is currently highly dependent on high prices for organic fruit (typically double that of conventional fruit), which may fall as UK supplies increase. A 20% reduction in prices for apples would lead to a halving of net margin and a 45% reduction would lead to all farms making a loss.
Although demand for organic dessert fruit continues to grow, the rate of conversion of UK organic dessert top fruit growers to production is still relatively slow. The main constraints continue to be: the high costs of conversion to organic production, estimated to be £6,800/ha for the conversion of an existing orchard over a three-year period, with the cost of establishing a new orchard being greater than £10,000/ha; and the low level and inconsistency of yields and thus profitable returns. To ensure continued investment in new plantings and to allow for management income and profits, average yields need to be increased. It is thought that even with the increased rate of Organic Farming Scheme Payment, of £1860/ha over five years introduced in 2002, will not provide sufficient economic incentive for farmers to convert more land.
The crux is that growers are still hampered by low and variable yields due to lack of suitable varieties and the inability to control pests and diseases, which have a major impact on the economics of production. A DEFRA Horticultural LINK project ‘Varieties and Pest and Disease Management for Organic Apple Production, has been addressing some of these issues, although much still remains to be done. The number of growers converting and investment by existing growers in new orchards with more appropriate varieties remains limited.
If UK produced organic top fruit, currently meeting 10% of the market, is to rise to comparable levels of self-sufficiency in the conventional sector (21%), then an additional 1,000 hectares ( at current yields) would need to be converted. Since it is the Organic Action Plan objective to see more UK grown organic top fruit, then government and business support for this fledgling sector should continue, and be co-ordinated. It is recommended that support can be provided through further funding for research (e.g. varieties, nutrition, pests and diseases, weeds, market, economics), development and dissemination of existing research.


EPrint Type:Report
Keywords:farming, fruit
Subjects: Crop husbandry > Production systems > Fruit and berries
Farming Systems > Farm economics
Research affiliation: UK > Garden Organic (HDRA)
UK > Department for Environment, Food and Rural Affairs (DEFRA)
Related Links:http://www.gardenorganic.org.uk/organicveg/research/show_project.php?id=12
Deposited By: Defra, R&D Organic Programme
ID Code:10775
Deposited On:16 May 2007
Last Modified:12 Apr 2010 07:35
Document Language:English
Status:Unpublished
Refereed:Not peer-reviewed

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