Profitability of organic farming in Europe

Summary

Organic farming has grown rapidly in Europe, and the area under organic management has more than doubled during the last few years. Economic aspects are increasingly determining this expansion. On the basis of a review of current and previous studies as well as farm accounting data and expert assessments, this paper gives an overview of the socio-economic performance of organic farms in Europe.
The comparability of profitability calculations between countries is a common problem for economic analysis, due not only to the differences in definitions. Different costs of living and purchasing power parities make comparisons of absolute figures less meaningful. These problems are less severe in the approach chosen for this analysis. As the focus is on the relative profitability of organic as compared to conventional farming, a comparison of this ratio can be made between countries and studies, with differences in methodology and definitions being of much less consequence for the results. The paper discusses the methodological problems of selecting 'comparable' conventional farms both from a theoretical and a practical point of view.
The presentation starts with a discussion of the main factors influencing the economic performance. Especially, an overview of yields, price premia and grants in organic farming in up to 18 European countries will be given.
While the study finds that on average the profits of organic farms are very similar to those of comparable conventional farms, significant differences exist for different farm types and regions, and the results will be differentiated and presented accordingly.
The paper concludes with an outlook on the future development of the competitiveness of organic farming. Based on the analysis of the impact of the 1992 CAP reform on organic farming, it is argued that the Agenda 2000 is likely to further increase the relative competitiveness of organic management systems.