A multi-country case study of the process of conversion to organic farming in the EU

Georgina Holt, Peter Grey, Robert Neilsen and Richard Tranter

Introduction

The decision to convert to organic farming is now highly influenced by governmental financial incentives arising from EU regulations. The exact mix of such incentives depends on the prevailing national government policies and farmers’ access to premium markets for their products. A particular problem for those undertaking a financial assessment of the organic option is the ubiquitous two-year conversion period during which time additional costs are nearly always incurred. Typically, these relate to declining yields associated with the mandatory reduction in agro-chemical inputs, lower livestock density resulting from lower herbage production, investment in conversion-related items such as livestock housing, and an estimated increase in labour requirement over conventional agriculture. However, during this time, organic premium prices are not generally realisable. Hence, most EU governments reflect this lean financial period in their structure of support payments.

State aid to conversion to organic farming provided under Regn. 2078/92 (EC, 1992) combined with the growing markets that Regn. 2092/91 (EC, 1991) facilitated by providing a clear boundary for product labelling and differentiation both provided considerable financial incentives for farmers to convert (Padel et al, 1999). Consequently, recent waves of 'conversion' have resulted more from conscious farm management decisions based on a clear financial assessment of the organic options than mere ideological beliefs. Hence the terms ‘committed’ and ‘pragmatic’ are now widely employed to discuss producer motivation within the sector, with the latter term being used to group those exhibiting a weaker affiliation to the sector, whilst being more likely both to enter and also to leave when margins are squeezed (Fairweather & Campbell, 1996). However, under the Agenda 2000 CAP reform programme, up to 2006, support for agricultural production will gradually be reduced and, though relatively more support will be provided for agri-environment measures than previously (MAFF, 2001), the importance of investigating market incentives for conversion has become paramount. In addition, the recent Mid-term Review proposals for reform of CAP also seem likely to both lower support to agriculture as well as de-couple support from production. To soften the impact of this, it is proposed that more agri-environmental payments will be made and it is probable that organic farming will receive further assistance (CEC, 2003). For these reasons, an investigation, funded by the European Commission, is currently examining market incentives for the organic sector in five EU countries – the UK, Ireland, Denmark, Portugal and Italy. This paper reports on the initial phase of the project, which entailed a series of case studies in these five countries. The objectives of these were: to identify factors affecting the decisions of conventional farmers considering conversion to organic farming; to identify problems that farmers thought they would face; and to consider and detail the financial impact of conversion on a range of farm businesses.

European context of the organic sector

Early development of the European organic sector was predominantly supply driven. In the early 20^th Century organic farming in Europe grew from two broad strands. First, out of a specialist ‘ideological’ method of food production founded in Austria and Germany under the ‘biodynamic movement’ in the 1920s (Conford, 1988). Second, this was followed by developments in other European countries largely in the second half of the 20th Century driven by scientists interested in soil health (eg Balfour, 1943). The foundation of the Soil Association in the UK in 1946 is indicative of the second strand. Growth of the sector witnessed a surge of grass roots interest during the counter culture, ‘back to the land’ movement, of the 1960s, but it is since the 1980s that growing demand for organic food, principally from the increasingly affluent upper socio-economic strata of European society, has provided the impetus for farmers to expand production.

In response to evident demand, EC policy in the 1990s began to incorporate mechanisms for organic expansion, which have been variously adopted and implemented in member states. In the early 1990s, two EU Regulations that relate directly to organic farming were introduced:

• EEC 2092/91 covers legally enforceable standards for crop production, labelling and certification (EC, 1991) and was amended in 2000 by EEC 1804/99 which extended regulation to livestock; and

• EEC 2078/92, which introduced support for converting to organic farming under the agri-environment programme (EC, 1992).

They are a reflection of policy-makers belief that organic farming provides environmental and health benefits and could help in stabilising rural communities and aiding rural development. Furthermore, it can be seen as a response to the ‘failure’ of conventional agriculture (Carruthers et al, 1997). The above regulations facilitated more rapid development of the organic sector. In particular, the 1992 agri-environmental regulation allowed member states to introduce support payments for farmers converting to organic production. Consequently, there was a 44-fold growth in organically farmed land in the EU, from 100,000 hectares in 1985 to 4.4 million hectares in 2001, over 3 per cent of agricultural land (Lampkin et al, 1999; SOL, 2002). Table 1 illustrates the relative importance of the organic sector in a range of EC countries in 2001 and shows that the countries covered in the study reported here represent a mix of well-developed and emergent organic production sectors. Of the study countries, whilst Italy has the highest proportion of farm land under organic production, Denmark has the highest proportion of farmers practising organically.

Data on the size of the EU organic food market are limited. However, the Soil Association (2002) estimate that in 2000 it was worth around €9 billion, some 25% of which was accounted for by Germany alone. According to Hau & Joaris (1999), the majority of the organic farm area in the EU is down to grassland and fodder crops, 19% has arable crops and only 8% is used for horticulture.

Table 1: Organic farming statistics for selected European countries, 2001

	Organic area as a % of all farmland	Organic area (ha)	Organic farms as a % of all farms	Number of organic farms
Austria	8.4	285,500	9.1	18,292
Italy^1	7.9	1,230,000	2.5	56,440
Denmark^1	6.5	174,600	5.6	3,525
UK^1	4.0	679,631	1.7	3,981
Germany	3.7	632,165	3.4	14,703
Portugal^1	1.8	70,857	0.2	917
France	1.4	420,000	1.5	10,400
Ireland^1,2	0.7	32,355	0.7	1,014

¹Study countries

² For 2000

Source: Soil Association, 2002

Organic support schemes in the study countries

Most support schemes in the study countries operate for a minimum period of five years. They are based on an area, rather than a production-related payment, but vary considerably in eligibility rules and amount of support. Table 2 demonstrates the complexity of comparing support levels across countries with different ratios of agricultural enterprise and priorities for economic, rural and agricultural development. However, some general inferences can be made about organic production sector development in relation to support by considering the timing, level, duration and targeting of subsidies available in the study countries; Austria is included for comparison purposes although it is not formally in the study.

Table 2: Typical conversion payments for first¹ two years and thereafter (Euros per ha²)

Country	Cereals/AAP		Other arable		Grass/ Forage		Vegetables		Intensive horticulture		Fruit		Vines/Olives
Austria	219												n.a.
Denmark	442	382	442	382	254	194	442	382	442	382	442	382
Ireland	336	193	336	193	336	193	401	193	401	193	401	193
Italy	150		250						600
Portugal	190				175		600				400		199/437^3
UK	299	0	232	0	284	0	232	0	232	0	232	0	n.a.

¹ The left hand column of a pair refers to the payment for the first two years

² Exchange rates on 22/6/01

³ Higher for farms less than 5ha

4 Figure for unimproved grassland and rough grazing

Source: Mayfield et al (2001)

Of the study countries, Denmark offered financial assistance first, in 1987, predating the introduction of Reg 2078/92 (EC, 1992) that largely acted as the driving force for conversion in other countries. Denmark also opted for high levels of payment with preferential rates for the first two years of conversion. Ireland has since adopted a strategy similar to Denmark with high rates overall and highly preferential rates during the conversion period. Austria, by contrast, although also initiating support early, opted for low constant rates for an extended period of time following conversion as a deliberate policy to ensure that farmers made a long-term commitment to organic production thus reducing the chance of them reverting to conventional production. Portugal and Italy have also opted for constant rates and, in Portugal, these are again relatively low. However, in Italy, rates are substantially higher. The UK appears to fall between these two ‘models’ in that rates are similarly low when compared to Austria but with preferential rates for the two-year conversion period and, until 2002 when the Government introduced an Organic Action Plan, no on-going organic support was available after the initial five-year contract.

A comparison of the targeting of support by product sectors also reveals some insights into support policy. In Austria there is no variation in payments according to enterprise although there is some regional support for pig, fruit and vegetable production. Italy and Portugal offer highly targeted rates of support for intensive horticulture. In the UK, Denmark and Ireland, support is not targeted as markedly as in Italy and Portugal but there is some variation (including a very low rate for unimproved grassland in the UK).

Additional modulation of support also exists. Preferential rates are available to small farms in Ireland and Portugal and there is regional variation in the UK (in rates) and Italy (in support programmes).

Each country has their own certification bodies that implement and control the maintenance of organic standards. The sequence of procedures for entering into a conversion agreement in order to obtain government subsidy bears many similarities in the different countries. However, there are some notable variations. In general, to be accepted as a licensee for organic subsidy, farms register with a certification body and this is dependent upon the submission of a detailed technical plan for the farm business. Denmark operates the most formal procedure. The initial contact for most farmers is the Danish Farmers’ Union and applications for conversion must be submitted to the Directorate of Plants by 31^st December each year if they wish to commence conversion the following year. The Italian process is perhaps the next most formal in that, once official notification of interest (the Notifica) has been submitted concurrently to one of nine certifying bodies and the Ministry of Agriculture, prior to acceptance, land entered for conversion is rigorously inspected and full details recorded due to a requirement, not upheld in other countries, to protect converting land from ‘contamination’.

The different methods available to farmers converting are broadly similar across the case study countries although exact regulations do differ slightly. In the UK farmers can choose between: full (two-year, whole farm); simultaneous (land and livestock together); fast track (delayed conversion of livestock); staged (staggered conversion of land); and part (not whole farm) conversion. In Denmark, Portugal and Italy all these options, except fast track, are available whilst in Ireland only full conversion of the entire farm is allowed. Part-conversion is permitted in the UK, Denmark, Portugal and Italy as long as organic and non-organic ‘holdings’ are physically, financially and operationally separate. In addition to this, Italian farmers have to make a full justification for opting for part-conversion on application. However, the most important certifying bodies encourage, and sometimes insist on, whole farm conversion making partial conversion either unacceptable or requiring considerable investment to protect converting land from contamination. Italy does, however, consider reduced (to 12 months) and extended (over 24 months) conversion periods although these are exceptional cases and require substantial technical justification to the authorities. Irish farmers also have the possibility for reduced and extended conversion on consideration of previous land use.

A staged conversion process does have some very strong points in its favour. For example, as Padel & Lampkin (1994) point out, it does allow a ‘technical’ learning process to take place in the farmer’s mind as they gradually adjust their procedures, and it also spreads financial risk. Furthermore, as MacRae et al (1990) state, the elongated period of change allows both a gradual ‘deintensificaion’ as well as a period of change in attitude towards organic production by the farmer.

Although some parallels have been drawn above between support policies, summarised in Table 3, these alone do not explain differences in the growth rate of organic farming. For example, the UK rate of conversion has accelerated faster than in Ireland where direct financial support is higher suggesting the existence of barriers other than income, which are of equal, if not greater, importance to farmers.

Table 3: Comparison of the modulation of organic sector support in six EU States

Variable	Denmark	Austria	Italy	UK	Ireland	Portugal
Conversion period	Higher rate for first two years	Constant rate	Constant rate	Highest rate Year 1 reducing over 5 years	Higher rate for first two years	Constant rate
Farm size	n.a.	n.a	n.a.	Maximum claim of 300 ha lifted in 1999	Higher rate for farms up to 40 ha for 1-3 ha of vegetables	Highest rate for first 5 ha, lowest rate for over 25 ha
Regional variation	n.a.	n.a.	Support programmes	Payments	n.a.		n.a.
Eligibility for support	Part conversion restricted	n.a.	Part conversion not routinely permitted	Existing organic farmers not eligible	Part or staged conversion not permitted Training compulsory	Training compulsory
Support extras	Extension, information, marketing	Advisory, certification, marketing