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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 Pty Ltd
Note: This article was presented at the OECD
Concerns facing organic producers can be divided into two main groups, production and marketing. In the early days of the organic industry, the production problems of farmers were emphasised, and research topics were often concentrated on soil, pests and diseases. More recently, as the industry matures and international trade of organic products has grown, the importance of market-related issues has come to the fore. On the one hand, the need for harmonisation of standards and acceptance of equivalence for market development — which would facilitate international trade — is recognised. On the other hand, a more serious push towards domestic consumption seems afoot, which would advantage domestic farmers but disadvantage producers in exporting countries.
The aim of this paper is to consider developments in the organic market from the 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 of producers regarding organic agriculture? What are the trade issues arising from domestic policy measures to develop organic products, including impacts on developing countries?
Many organic farmers all over the world face similar technical, economic and social problems. These are identified in the following section. However, answers to these questions depend considerably on where the organic farmer is located. The geographical location of a farmer is important because soil and climate differences influence input requirements, yields and total farm production capacity. Different policy approaches are then discussed, looking at the impact of policies on those producers for whom they are beneficial and those organic farmers in other countries that feel the consequences of those policies.
The aim of surviving or thriving as an organic farmer can be accomplished in many ways. One component of survival is the financial viability of the farm. Farm returns are influenced by input use, total production, product prices and market access, that is, production and marketing issues. A summary of issues is provided here to serve as a background for the policy issues, discussed in the next section.
In essence, organic farmers manage soil fertility (often called crop nutrition by conventional farmers) and combat pest problems (including insects, weeds, fungi, nematodes and diseases) in a different way than conventional farmers. Management methods may include, for example, changes in inputs (crop varieties and livestock breeds; nutrients; predators), rotations (more and different crops and livestock), and timing of activities (planting dates and harvesting dates).
Thus, one area in which organic farmers encounter problems in the production of crops and livestock is in the maintenance of soil fertility and avoidance of pest attacks, while minimising the environmental effects of their actions. The exact nature of the soil, pest and environmental issues is geographically determined. For example, in a climate where frequent small amounts of rainfall occur, weeds are more likely to be a problem, while warm and humid conditions are more conducive to fungi or pest problems in crops and livestock. Dealing with these may require a change in use of other inputs, such as labour and capital.
It is therefore not surprising that because relatively few farmers use organic practices, many of the complaints by farmers are centred around 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 for those inputs not commonly purchased (Wynen 1992).
It is often assumed that more
labour is needed in organic than in 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 for organic and conventional production are more difficult to find. As land values are determined by expected returns, there should not be a large difference between the two types of farms. Organic farms may require additional capital due to, for example, changes in farm lay-out (fencing), storage, change in livestock numbers and in machinery. As these investments are needed when converting to organic farming, it is especially the farmers in transition who carry this burden.
Another issue, sometimes discussed by farmers perhaps more in the past than presently, is the moral support needed to take the step towards organic management while there is social pressure against adopting the technology (Wynen 1992).
Nutritional and pest constraints
under organic management can result in yield decreases as compared with
conventional agriculture. However, this is by no means always the case,
especially not in areas where conventional agriculture is practised relatively
extensively, such as in the
The variability of yield and financial returns has been a topic of study in developed countries. Little evidence has been found that the management system is a major factor in the degree of yield and financial variability, although some studies show less variability under organic management (Lampkin and Padel (eds) 1994).
The tendency towards mono-cropping in conventional farming is reversed on an organic farm. That is, less financially-rewarding production may be included in the rotation. This affects the total farm production, and has a negative effect on the gross returns.
From the producers’ point of view, net returns to farming are an important, albeit not the sole, consideration to continue farming. These net returns are made up of gross returns for the whole farm minus input costs. The gross returns are dependent on total production (that is, yields of individual enterprises and rotation practised on the farm), product prices, and farm subsidies.
Although the level of prices influence demand for the product, it is the relative prices of conventional and organic products that are of importance in consumer decisions. This means that there are two prices that are of importance. One is the retail price of the organic product, which is only in part (depending on the product) influenced by the farm-gate price. As long as organic production is small, the off-farm costs of marketing the product (including cost of transport, insurance and distribution) will be high relative to those in conventional products. This extra cost will need to be recouped by the traders, resulting in high retail prices. However, in markets where traders have monopoly powers, the retail price can also reflect, at least in part, monopoly rent.
The other important price is the retail price of conventional products. External costs of conventional farming practices (such as problems with water quality, people’s health, biodiversity) are often higher than with organic farming.  If these costs were borne by conventional producers instead of by taxpayers, at least some of the costs would be passed on to the consumer, thus reducing the difference between retail prices for products of the two farming methods.
Another way in which (farm) prices can be reduced is by subsidies for organic production. They are provided in some European countries. The effect may be that the cost of production is lowered, and that the farmer can accept lower product prices in order to survive. This can be passed on to the consumer.
To obtain price premiums, organic products need to be certified as genuinely organic. In some countries certification is rather straightforward, as the infrastructure is in place. In others, any certification and especially one that is acceptable to enable international trade, can be a major problem, and rather costly.
Another issue is the availability of the market. Campaigns in favour of “domestic consumption” can enlarge the market for some producers, and restrict access for others.
So, in summary, separate marketing can be rather expensive for several reasons, including the low volume of product, the possibility of monopoly power in the trading sector and the requirements of a certification system. The taxing of pollution-causing inputs in conventional farming, and subsidies for organic farming can reduce the differences in consumer price for organically and conventionally grown products. 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 is that they may have to fulfil the requirements (and organic standards) of several countries simultaneously. A separate problem for those countries is that the organic movement, especially in developed countries, may be focussed on local consumption, thus making market access for exporting countries more difficult.
Producer constraints in developing countries
A list of production constraints for developing countries closely resembles the problems applicable to organic farmers in general (Twarog and Vossenaar 2002):
· technical know-how (due to few trained professionals in the field);
· lack of organic production inputs (composting materials, biopesticides, biofertilisers);
· 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 (e.g. transport and storage) for regular agriculture makes segregation of organic production even less likely;
· limited market information and channels;
· lack of acceptance by existing standards and certification, or the need to import certification expertise in order to be able to export.
A further issue of relevance to farmers who do not own their land, possibly more frequently the case in developing countries, is investment in soils. In organic agriculture, the emphasis is on soils, where improvements are seen as essential for nutrient and pest prevention management. In those countries where farmers own their land, or where leasing arrangements are such that land cannot be taken away from the user easily, investment in the land base is not a problem, as the returns are for the investor. However, where the farmer has no land-tenure, there is no incentive for the lessee to improve soil quality. Indeed, there may be a disincentive, as improvement of land quality may be directly linked to the land being withdrawn from the user.
When listing producer constraints, it is important to realise that some issues relate to the scale and maturity of the industry, and will be resolved as the industry grows. That is, these problems are not intrinsic to the organic system, even though farmers may experience them as problems for the time being. For example, lack of information about organic practices is often mentioned as a major problem to convert to organic agriculture. Whereas this may be a problem for many prospective organic farmers at present, if future generations on organic farms continue to farm organically, a lot of the knowledge will be automatically transferred between generations — and to non-organic neighbours. Another example is the market for both inputs and outputs. There is no reason to believe that the markets for organic inputs, at least the physical ones, will behave differently from those operating for conventional farmers. The costs of processing and marketing organic produce should also decrease per unit of product, as the number of organic farmers increases. An increase in the number of traders could reduce the scope for monopoly rents. Finally, many of the problems that are genuine long-term problems for organic agriculture can be alleviated by government policies. This is the topic of the next section.
Some countries realise that there is a role for government to play in the expansion of organic agriculture. As negative externalities in conventional farming are larger than in organic agriculture, they have decided that at least some government interference favouring organic agriculture (or adjusting the balance, some would say), is justified.
Inputs in organic agriculture often possess more of the public goods characteristic — a justification for government involvement — than in conventional farming. Changes in rotation, crop and livestock mixtures, biological processes involving predators and parasites etc. take the place of pesticides and fertilisers — private goods for which companies are willing to do research and advertising. Therefore, without government intervention, obtaining and dispersing knowledge about the most efficient use of many of the practices in organic agriculture will be carried out at a sub-optimal level. Also the development of a separate market, requiring standards and certification both for the domestic and international market, has public good aspects, and deserves government attention. Policy measures are therefore usually in the areas of subsidies for organic farmers, taxes for conventional farmers, research and extension, and product certification and harmonisation.
The last policy mentioned in this section refers also to markets. However, it is mainly a private initiative to influence the market availability for domestic producers.
Level of support
is carried out rather intensively in many European countries, and population
density is such that any negative effects of such farming would perhaps be felt
earliest and most intensively by inhabitants/consumers in those countries. In
Although organic growers in other
countries may well receive some support in one form or another, it will rarely
be to the extent provided in
Subsidies for organic growers
Organic farm subsidies have a number of direct and indirect effects. First of all, they allow farmers to sell their products cheaper than they otherwise could have done. This will affect the number of consumers who are willing to buy the produce, a very important aspect in building a market. At the same time, it is likely to affect the input prices into the production process, especially of land. This is the case because there is a conversion period for organic production, i.e. a threshold to entry. However, the price is not likely to rise too much, as other land can — in most cases — readily be converted to organic farming. The net effect for organic farmers is therefore an increase in income, depending on the price effect.
countries where conventional farming is subsidised, (unintended) negative
effects on organic agriculture by these general subsidies can occur. For
example, due to a difference in crop mix on organic and conventional farms, EU
policies (which pay different amounts for different enterprises) can deliver
higher subsidies to conventional farms than to organic farms of the same size.
This was the case, for example, in
second class of effects is created towards producers who do not receive
subsidies. If they have similar costs to producers who receive subsidies, they
will become less competitive, and may go out of business. This was recognised in
Farm subsidies in general can lead to inefficient use of resources, in organic agriculture as in conventional agriculture. In other words, subsidies in one country, by affecting the price level and the quantity of production (number of farmers who can stay in business), affect farmers in other countries. This can distort the true picture of efficiency in resource use between organic farmers in different countries: bad news from an environmental perspective.
The international organic movement presses for subsidies for organic agriculture, as this is its role. But these subsidies may have an indirect effect of limiting production in non-subsidised areas. It is important to realise that organic farmers in those countries are equally farming according to organic practices, and deserve as much support by those who are concerned about minimising the world’s use of resources in the quest for agricultural production. A more appropriate approach may therefore be to target the externalities generated in conventional farming.
Taxes on conventional farming methods
market solution to the problem of ensuring that conventional farmers take more
responsibilities for the externalities they cause is, in theory, reasonably
straightforward, e.g. taxing the use
of fertilisers and pesticides such that producers only use the amount of input
that causes damage equal to the taxes paid. Scandinavian countries in particular
have implemented such policies. For example,
If the intention of taxes is to make farmers carry the burden of the total cost of the input, the practicalities of a tax are not quite clear. As fertilisers and pesticides have different effects on different soil types and under different climatic conditions, the use of the same amount of the same input does not create the same environmental damage. Making each farmer pay their particular cost is therefore difficult, and an assumption of average costs in cost calculations may therefore be most appropriate.
Research and extension
Lack of funding for organic research and extension is often pointed out, and the direction of research to promote organic agriculture has also been the topic of discussion.  In the past, the emphasis of research has often been on farm production techniques. For example, at the International Federation of Organic Agriculture Movements’ (IFOAM) Scientific Conference in 2000, almost half of the papers (and three‑quarters of the posters) were presented under production-related headings (soil, plants, animals). Approximately 15% of the papers were in the market development category (including standards and certification) and a similar figure for policies.
little effort has gone into analysing where the limited funding could best be
spent to reach the goal of expanding organic agriculture (Wynen and Vanzetti 2000). One area
that has been recognised as worthy of attention for example is that of consumer
education, for example in
Research into more 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 in decreased production costs, which are then passed on to the consumers.
Standards, certification and harmonisation
Product certification is an
essential part of the viability of organic producers, and is important in
international trade. Some countries,
for example in
Despite the organic movement’s
professed interest in local consumption of organic products (see below), there
are a number of countries where exports are and will be of great relevance. In
developing countries, export markets are essential for income generation,
especially where premium prices can be secured in developed countries and less
so domestically. In other cases, such as
In order to facilitate international trade, harmonisation of standards and certification over the world is needed.  This should not imply exactly the same standards for all countries. As agricultural conditions are dissimilar, flexibility in standards is required. IFOAM certainly recognises this.  However, for countries to be able to export to importing countries, their standards will need to be acceptable to the importing country. This may mean that standards need to be adopted which are not practicable to the exporting country. International trading rules permit countries to determine their own standards so long as they apply them equally to imported and domestically-produced goods. However, there is a danger that countries set particular standards to protect their own producers.
The two countries with the
largest demand for organic produce, the EU and the
EU regulations regarding imports
have been in place since the early 1990s and are summarised here to provide a
picture of the constraints for countries wishing to export to the EU. The EU
allows three methods of import from third countries (Commins and Kung Wai 2002). First
of all, the EU established a “third country” list, which includes countries
with which the EU has established equivalence. That is, products exported from
those countries as “organic” are accepted as such by the EU.
At present, seven countries are on the list.
Products from other countries
can be imported if the importer submits documentation that the products
are produced and certified according to rules equivalent to those of the EU.
This provision (the “importer
is scheduled to expire on
For producers in many developing countries, and also in developed exporting countries, these requirements mean that export of organic produce may not be easy. Many developing countries do not have a domestic 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 with different standards in different markets would add to the cost of production and marketing. In addition, time delays, due to the requirement of documentation of each consignment, may well inhibit exports.
Although rumblings about local production and consumption have been heard for a long time in the organic movement, they have increased in intensity over the last few years. The idea behind it is that local consumption would cut down on transport costs, and therefore be better for the environment (Geier 2001). While organic organisations may campaign for consumers choosing locally produced food,  the case for reduction in resource use through producing goods as efficiently as possible (through specialisation of production and international trade) seems forgotten or misunderstood (Vanzetti and Wynen 2002). Purchases of locally-produced products at higher prices than those which international trade allows, can accentuate non-optimal resource use to the detriment of people — and environments — in all countries. The concept of the “whole life cycle” evaluation in terms of resource use is well established (Meier-Ploeger, Kjer and Simon 1996), yet the importance is rarely mentioned when the issue of local food consumption comes up. Furthermore, exports of organic goods provide an important opportunity for many poor farmers in developing countries.
Concerns facing organic producers 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 is marketing (product prices, cost of marketing and market availability). In the early days, the production problems of farmers were emphasised, and research topics were often concentrated on soil, pests and diseases. More lately, as international trade of organic products has grown, the importance of market-related issues has come to the fore.
Direct subsidies to organic farming, to aid conversion or to compensate for more environmentally friendly practices, and other forms of subsidies, have been obtained in some countries but not in most. These cause advantages for some (including producers and consumers) and disadvantages for others (producers in exporting countries whose competitive edge decreases). Decreases in consumer prices are essential for a growth in the organic market, which will partly happen through increased production and maturity of the market. A further realisation is the need for harmonisation and equivalence in agriculture. Serious issues regarding non-tariff barriers (such as time delays due to the need for documentation for importing purposes) are raised. A push towards domestic consumption seems afoot, which could also be seen as a non-tariff barrier: organic producers in some developed countries protecting their patch against products from exporting countries.
Rather than dividing the organic movement through
promoting policies that are good for some and bad for other producers, a more
useful approach for all organic producers may be to encourage governments to
initiate polluter-pays policies. A tax on pesticide and fertiliser use is one
such example in agriculture. Though several countries in
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. FAO (1998): “Due to slow mineralization of nitrogen under cool growing-conditions, crops on organic farms have a shortage of nitrogen early in the season. However, in countries where low soil temperature is not a limiting growth factor, as in many developing countries, this factor should not prove significant.”
. See, for example, work carried out by Pimentel et al. (1993); FAO (1996); Redman (1996); Stolze, et al. (2000).
. See also Lipson (1997).
Luanne Lohr, Associate Professor Agricultural
and Applied Economics,
“The AQIS organic program will directly cost the Australian organic and
biodynamic industry A$84,500 (approx. US$46,500) for the 2002-03 financial year.
This sum is divided into seven certifying bodies…and I assume is then passed
onto approx 1 700 clients
. In general, the government tops up farmers’ research levies. If this is added to the levies on organic farmers, the total amounts to USD 360 000.
. See, for example, Krell (1998); FAO (2000); Lipson (1997); Lockeretz (2000); and Wynen and Vanzetti (2000).
. See, for example, Wynen and Vanzetti (2000), and Lampkin et al. (1999).
. Lampkin et al. (1999).
There are countries where a large
part of the organic production is sold in the conventional market. For example
. See IFOAM (2002).
See press release by the Soil Association,