Environmental and macroeconomic impact assessment of different development scenarios to organic and low-input farming in Croatia

Summary

This study was commissioned by the UN Food and Agriculture Organization (FAO) within the framework of an FAO technical assistance project for Croatia. It assessed macroeconomic and environmental impact assessment of large-scale conversion to organic agriculture. It examined the consequences of such a conversion to national agricultural output and related environmental and economic performance.
The assessment also took into account the impact of wide-spread adoption of organic agriculture on farm-upstream linked sectors (FULS). These include energy production and supply, manufacturing of agri-chemical inputs, trade, transport and research, education, advisory, veterinary and administrative services. The agricultural output, environmental and economic performance of the baseline scenario (average of 2001-2003) was compared with fourteen development scenarios involving various shares of utilised agricultural land (UAA) under organic management (10, 25, 50 and 100 per cent) and different yields (100, 75 and 50 per cent of the baseline).
In order to obtain the real value added (RVA) created by farming and FULS, the generated gross value added (GVA) was corrected for the associated environmental costs (damage to air, water and soil) and public investments. A monetary value was assigned to all identified environmental damages throughout farming and FULS using various environmental accounting methods.
If the entire UAA in Croatia converted to organic farming and if the crops and livestock gave the same yields as in the baseline situation, the farming and FULS would generate a 43 per cent higher annual GVA and 155 per cent higher annual RVA than the baseline scenario. This scenario implies refraining from the use of nearly all agri-chemical inputs. It consumes far less fossil energy (notably in FULS) and causes less environmental damage to soil and water (notably in the farming sector). Consequently, its environmental costs are nearly two times lower than in the baseline.
The study results suggest that Croatian farming and FULS in the period 2001-2003 when measured in terms of RVA produced a negative effect on the economy and society in general. Farming is the key sector since it accounts for 90 per cent of the workforce, 61 per cent of GVA, 89 per cent of environmental costs and 77 per cent of public investments of the entire economic chain examined.
The scenario involving a 100 per cent organic area, but yielding only 75 per cent of the baseline scenario produces a 17 per cent lower GVA. However, when corrected for public investments and environmental costs it results in 71 per cent higher RVA than the baseline scenario. The 100 per cent organic area scenario achieving only half of the baseline yields results in both lower GVA (75 percent lower) and RVA (6 per cent lower) than the baseline scenario. Of all examined scenarios, this is the least favourable for organic farming as its results exhibit the biggest discrepancies in comparison with the baseline situation.
Similar results were obtained in all other scenarios (involving 50, 25 and 10 per cent organic area with 100, 75 and 50 per cent yield levels as compared to the baseline).
The organic options, measured against the RVA created are better (7-89 per cent), only in cases where the yield level is 75 or 100 percent of the baseline. If the obtained yields are 50 per cent lower, the organic scenario options create both lower GVA (1, 19 and 37 per cent) and RVA (1, 2 and 3 per cent) than the baseline. The scenarios assuming a 10 per cent premium price (10 and 25 per cent organic area achieving 75 per cent of the baseline yields) create about the same GVA as the baseline, but 10-25 per cent higher RVA.
All scenarios involving organic farming decrease environmental costs compared to the baseline. Provided the yield is not 50 per cent lower, all organic scenarios result in a higher RVA than the baseline.
The agricultural output (yields) remains the key factor in determining the feasibility of a shift to organic farming. A severe reduction in agricultural output jeopardises national food security. However, since organic farming goes hand in hand with careful management, in the case of Croatia it would not necessarily lead to (much) lower yields. Pioneering efforts in Croatia, as well as evidence from other countries with a similar agricultultural situation also indicate this.
Conversion to large-scale organic farming requires high human and social capital. Organic farming is low-input from the point of view of the use of external farming inputs, but is high-input from the point of view of the knowledge and skills needed. In the case of Croatia where farmers and other key stakeholders have a relatively low level of general education and poor agricultural training, this point will certainly be the main obstacle preventing a greater spread of organic farming. Policy efforts should therefore focus primarily on stimulating the formation of social capital and increasing human capacities of all stakeholders involved in the organic food chain.