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	Certification, inspection (Tuscany)	Advisory	Grants for post harvest facilities	Certification, inspection

Source: Mayfield et al (2001)

Case study methodology

The aim of the research was to provide information to farmers and policy makers regarding the financial impact of conversion on the farm business and on farmer motivation to convert to organic production. This was to be achieved through obtaining attitudinal, financial, physical and socio-economic information from farmers ‘who have shown an interest in conversion to organic production but have not yet initiated the process’.

In recent years, ‘case study’ has been used to address the methodological needs of both policy and organisational research (Smith & Robbins, 1982). Because the case study process uses a diversity of approaches to data collection and analysis, it is better suited to addressing the range of questions that policy and farm decision makers must answer (Ward, 1997; Coffey et al, 1996) and, within the study, quantitative and qualitative methods are conducted alongside each other (Hamel et al, 1993). The case study aims to understand everyday practices through descriptive and explanatory analyses (Yin, 1994) and, although findings are of unknown generalisability, the case study is considered to be more flexible to emergent issues and more sensitive to causal processes than traditional survey techniques (Stake, 1995; Cassell & Symon, 1994). Furthermore, case studies have recently gained popularity over full survey and field methods specifically in the organic research context because they are useful for comparing organic and conventional production systems (Lee & Fowler, 2002), are able to capture the diversity and complexity of organic farm management systems (Hesketh et al, 2002), and are advantageous when it is important to understand the farm as a ‘human activity system’ (Padel, 2002).

The case study provides insight into a research question through the investigation of appropriately selected micro-units, bounded by time (Stake, 1995) but can be employed at different levels. For these reasons the organic conversion case study was designed such that 27 individual farm case studies were undertaken in each of the five participating countries and these constitute a multi-case study for each country, which together constitute a multi-country case study.

Typically, case study involves on-site data collection (Cassell & Symon, 1994; Smith & Robbins 1982) of:

· Objective records: such as field observations; interviews; audio-visual material; documents and reports; and

· Subjective descriptions of meaning reached through the interpretation of the data itself.

In this study, data collection was achieved through the use of semi-structured interviews of 2–3 hours duration conducted on a one-to-one basis with the farmer between the winter of 2001 and spring 2002. Before this the interview schedule had been trialled on-farm to iron out any difficulties in wording and to see if farmers actually had the necessary information. The interview recording schedule was sub-divided into three sections as follows:

PART A comprised open and closed questions relating to socio-economic data about the farm, farmer and farm household, and their perceptions of information and requirements for, benefits of, and barriers to conversion to organic farming;

PART B entailed the collection of physical and financial farm data in order to construct farm budgets; and

PART C consisted of 24 attitudinal statements that identified issues of known importance to organic farmers derived from previous surveys conducted by the Bioteknologisk Institut, Denmark. Attitudinal statements either compared the performance or output of organic and conventional farming, or related to resources, including market infrastructure, available to farmers. Statements were classified according to eight dimensions - Production, Environment, Finance, Quality, Personal Values, Animal Welfare, Information, and Marketing - with three statements relating to each of the dimensions. The 24 statements were randomised in order and attitudinal questionnaires were administered in the same randomised order across the study countries.

Sample selection

The case study sample is neither random nor probabilistic (Hamel et al, 1993) but can nevertheless provide a representative picture of systems, rather than their distribution within the population (Cherryholmes, 1988). However, for this study, farms were recruited to maximise as far as possible the diversity of regional agroecology within the country. The exception to this was Italy where organic support payments are set regionally and consequently the study was conducted on a regional basis also (in Tuscany).

Recruitment of farms to the study was based on a sampling frame constructed according to three broad product sectors - Cereals/Horticulture, Dairy, and Meat - classified by their current main enterprise as some farms would change product sector after conversion, and three farm size groups determined according to the country context. For example, average farm size in the UK is greater than the European average in contrast to Italy where farms have a much lower average area. Average case study farm size for all farms was highest in the UK (180 ha) and Denmark (95 ha).

Figure 1 shows average farm size by the different product sectors from which it can be seen that overall the largest farms were found in the UK cereal sector (351 ha). However, the majority of these farmers were considering part conversion of less than one third of their total land area. This is followed by UK dairy farms (247 ha), Portuguese meat farms (134 ha), and Danish dairy and meat farms (123 and 120 ha respectively). Farms in Ireland and Italy, cereal and dairy farms in Portugal, cereal farms in Denmark and meat farms in the UK were, on average, all under 100 ha. The smallest farms in the study were dairy and horticulture farms in Portugal (average 16 and 42 ha respectively), and horticulture farms in Italy (39 ha).

Figure 1. Average case study farm size by product sector

Figure 2 shows the composition of case study farms by product sector in each of the five study countries. Differences between countries in recruitment to these product sectors are partly explained by existing variation in agriculture in those countries. For example, in Italy a larger number of cereal/horticulture producers were recruited due to the prevalence of wine and olive growers, whilst in Ireland and the UK the majority of farms recruited were beef and sheep producers. There were very few dairy producers recruited in any of the countries potentially due in the UK and Denmark to an over supply of organic milk at the time of recruitment, and in Portugal due to an undeveloped market for organic milk.

Figure 2. Distribution of case study farms by product sectors across study countries

Analysis

Analysis was designed to understand the financial, agricultural and market related impacts of conversion to organic farming through a combination of qualitative and quantitative methods employed at different levels of aggregation according to the following framework and is discussed in more detail below:

Farm	Location	Map	Kruskal-Wallis Rank test	Matrix Pattern Search
	Size	Descriptive statistics
Business	Finance^1	Financial budgets
	Management^2	Descriptive statistics
Personal	Education
	Gender / Age
Values	Perceptions	Coded text
	Attitudes	Principal Components Analysis	Kruskal-Wallis

¹Family Farm Income; investment on the farm; ²Tenure and legal status of business; labour.

Farm budgets

Gross margins, which are the monetary value of output less the variable costs incurred in producing that output, for organic enterprises in the UK were first published by Lampkin and Measures (1994). As Warren (1998) points out they have become a standard device for farm planning and they are useful for comparing performance of organic enterprises on the same farm, or between different holdings, or for conventional versus organic enterprises. However, using gross margins for a comparison can be misleading where the fixed costs structures behind enterprises vary and they do not allow for variation in enterprise margins in organic systems that include fertility-building phases within a cycle of crop rotation (Lampkin, 1998). Although fixed costs, such as those for machinery or regular labour, can be apportioned to individual enterprises in the calculation of net margins, the problem of accounting for rotations on organic farms remains (Firth, 2002). A further complication in comparing the economics of organic systems with conventional farming is the need, in an ideal world, to make a comparison over a period of several years for two reasons. First, to allow for fluctuations in yields or market conditions. Second, to allow for the organic rotation to mature for a period of time after conversion was started (Coleman, 2000).

Bearing in mind the above issues, a whole farm economic appraisal method is better able to allow for the ‘interrelated nature’ of organic enterprises. Thus, in order to obtain comparable data across countries, such a measure, Family Farm Income (FFI), the return to the farm family’s own labour, land and capital was calculated. Non-agricultural revenue and costs were excluded. This measure is used in the study countries in farm accounting practice and is compatible with material published by Eurostat and by the Farm Accounting Data Network of the EC. Figure 3 shows how it is derived; it can be seen that as it does not allow for the imputed cost of unpaid (family) labour, it over-estimates the true return to the farm family.

FFI was determined for three scenarios––the current conventional agricultural situation, the second year of the conversion period, and for the first year of full organic status (most often the third year except for permanent crops that need a three-year conversion period to become certified). Figures for the current scenario were obtained either from the latest set of farm accounts or, where farm records were not available, from published standard farm management data. Budgets for the conversion and organic scenarios were constructed using information provided by the farmer regarding his/her desired enterprise mix after conversion and their expected market premiums for organic produce, supplemented where necessary with standard farm management data, technical expert opinion, and published market data.

Coded text

Textual responses to open-ended questions in Part A of the interview schedule were ‘coded’ under topic headings following the standard procedure informed by grounded theory (Glaser and Strauss, 1967).

Figure 3. Calculation of Family Farm Income

Receipts (sales of livestock, livestock products, crops and subsidies)

Less

Expenditure (variable costs, general overheads, fuel, repairs, rent paid, paid labour and interest)

Equals

Cash income

Less Less Less

Imputed items Depreciation Imputed value

Other than rent of unpaid labour

Plus

Crop and livestock

valuation change

excluding BLSA1

Equals

Occupier’s net income

Less Plus

Imputed rent Imputed value of

unpaid labour

Plus Plus

Occupier’s expenses Breeding Livestock

& depreciation of Stock Appreciation

buildings and works

Plus Less

Net interest payments Interest received

Equals Equals

Net farm Income Family Farm Income

Source: Adapted from MAFF (1998).

Principal Components Analysis

In Part C of the interview schedule a seven point Likert scale was used to gauge the level of agreement with attitudinal statements. These scores were analysed as mean scores and, in addition, a pilot study of three to four farmer interviews in each of the five participating countries indicated the potential for using Principal Components Analysis (PCA) of the data to identify differences and similarities in attitudes between ‘nationalities’ through the clustering of farmers according to similar attitudes. PCA is a multivariate statistical technique, which is performed on a set of measured variables to find out which variables explain most of the variation between the cases. PCA uses similar principles to preference mapping for consumer research. However, in this study, the map may be conceptualised as one of interest rather than preference. The analysis reduces variables to dimensions, Principal Components (PC), represented as directions or axes on which the variation between cases is illustrated. The degree of explanation of the variable accounted for by PCs is expressed as a percentage, thus PC1 provides the biggest contribution to explaining the difference between cases followed by PC2, PC3, etc. Initially, the PCA did not provide a high degree of explanation of Likert scores and consequently adjustments were made to the data in order to increase the clarity and fit of the final map. First, to gain a better understanding of clusters, the scores for the three questions in each of the eight dimensions were aggregated. Second, the scale was reversed for some statements so that all statements in each dimension were either positive or negative. For example, in the case of Marketing statements:

1) Consumers are prepared to pay a premium for organic foods

2) The market potential for organic food is growing

3) There are not enough processors of organic food

the scale for statement 3 was reversed so that answers gave an indication of agreement with the positive statement “There are enough processors of organic food”. Subsequently, the respondent’s average score for the three statements in each dimension was used in the analysis.

Kruskal-Wallis test

The Kruskal-Wallis test (K-W) is a non-parametric, median test that compares average ranks. All 27 cases in each study country were given a rank in relation to each attitudinal statement. The test then assigned a mean rank derived from the average of individual farm rankings such that the higher the mean rank, the greater the group’s level of agreement with the attitudinal statement, or by referring to individual farm rank scores it becomes apparent where differences lie. Cases were analysed in total and grouped according to various socio-demographic variables.

Pattern searching

In order to gain a better insight into the context of farm cases, and to provide a more representative picture of converting farmers, a matrix was constructed showing a number of farm and farmer characteristics. By grouping cases according to particular variable indicators, patterns emerge from which it was possible to derive ‘composite’ farm types defined by a mixture of agricultural and socio-demographic characteristics. These ‘composite’ farm types will form the starting point for further analysis of the problems facing converting farmers in a subsequent component of the ‘Conversion’ project.

Socio-economic and demographic context of case study farmers

Figure 4 illustrates selected characteristics of the case study farmers. The majority (86%) of farmers in all countries were male, with more representation from women in the UK and Denmark, and aged between thirty and sixty years of age (84% overall), ranging from roughly two thirds of farmers in Denmark to all farmers in this age range in the UK. The highest level of general education (technical college or higher) that the farmer had achieved varied considerably between countries and was highest in the UK (nearly all farmers) but less than 30% in Portugal. The figure recorded for Danish farmers refers to possession of the ‘Green certificate’ which takes 43 months to complete but is not considered an ‘academic’ qualification. The 13 farmers not possessing this certificate were therefore hobby farmers but separate details of general education level achieved by these was not recorded and therefore the proportion of farmers with ‘technical or higher’ education could be underrepresented. Overall, 23% of all farmers had been brought up to the age of eighteen in a wholly or part urban environment. This proportion was highest in Portugal (nearly 40%) and lowest in the UK, Denmark and Ireland (around 15%).

Figure 4. Case study farmer characteristics

In the UK, Italy and Denmark farms recorded an average 40-45% total income coming from off-farm income sources. In Ireland, average off-farm income was noticeably higher (over 60%), whilst in Portugal off-farm income on average made up only 32% of total income. In the UK and Ireland, a general, trend of increasing off-farm income with decreasing farm income was seen but in Portugal such a trend was not apparent.

Farm tenure and labour

In Denmark and Ireland over 70% of farmland on the case studies was owner-occupied. In Portugal this figure was around 60%, and in the UK and Italy around 50%. In all countries, the majority of farms were either sole proprietorships or family partnerships, indicating the high number of ‘traditional’ farm businesses interested in converting to organic production. In all countries apart from Denmark, there were a high number of farms on which the farmer’s spouse was employed, although in Portugal this represented only half the level found in conventional agriculture indicating the need for caution in comparing data independently from the conventional sector. Few farms, apart from those in Ireland, employed the farm’s children although figures for farms without children or children too young to work were not recorded separately.

Conversion to organic farming

Farms were classified according to the main enterprise in their conventional enterprise mix. As most farmers chose to convert their existing enterprises to organic, the farm remained in the original designated product sector after the projected conversion. In both the UK and Ireland only one producer would change from dairying to meat. In Denmark, none of the farms that had decided to convert would change product sector but three of the five producers that had decided not to convert would have changed product sector. In Portugal all the dairy farms would cease milk production and start up horticultural enterprises as the Portuguese organic dairy market is pre-existent. In addition, a number of meat producers in the UK and Ireland would change their livestock mix, usually reducing or ceasing sheep production.

The chosen method of conversion to organic production for the case study farms in each country was largely dependent on the type of farm converting. In all countries, meat producers would undertake the traditional two-year conversion of land and livestock (simultaneous conversion) as would most dairy farms. However, in the UK, the four dairy producers would convert via fast track conversion, for which feed standards do not have to be adhered to for the whole two-year period. Some meat producers would opt for part-conversion. This varied between countries with all nine meat producers in Portugal converting the whole farm, whilst only three of the six meat producers in Denmark intending to.

Cereal/horticultural farms displayed the greatest variety in chosen method of conversion. In Ireland all cereal farms would undergo traditional two-year conversion, whilst in Denmark and the UK a number of farms would convert blocks of land over a period of up to eight years, a method known as staged or staggered conversion. In the UK four of the six cereal / horticultural farms and, in Portugal, five of the thirteen crop farmers would choose part-conversion.

Financial structure and performance of the case study farms

Fixed costs changes

Changes in fixed costs as a result of converting to organic production ranged from an average fall in fixed costs on Danish farms of €8,611, to an average increase of €9,916 for horticulture farms in Portugal. In Italy, twenty of the twenty-seven farms would see an increase in fixed costs of on average €6,000, and in Portugal, average fixed cost increases for permanent crops was €5,460. Sheep milk farms in Portugal recorded an average €2,067 increase; in Ireland, farms would experience an average increase in fixed costs of €1,756 and, on average, producers in the UK would experience an increase in fixed costs of €1,440.

In order to convert, many of the farms would require investment including: machinery; buildings; irrigation systems; livestock; and livestock quota. In Ireland, sixteen of the twenty-three meat farms would require either new buildings or modifications to existing ones. Highest average investment per farm was in the UK at €24,200 (€202 per ha of land converted), with 65% of this needed for buildings and breeding livestock. Average investment per farm for all three product sectors in Ireland amounted to €16,000. In Portugal investment would be moderate. All dairy milk producers would cease, selling their livestock in order to erect glasshouses in preparation for becoming horticultural producers; livestock sales would more than compensate for the new investment. Farms in Denmark that chose to convert their livestock have suitable buildings already, thus obviating further investment.

Changes in income

Due to variation in farm types, with differences in arable and horticulture/permanent crops between northern and southern Europe, aggregated data is of limited value. However, from Table 4 it is immediately apparent that profitability varies widely between countries and product sectors both before, during and after conversion.

Cereals/horticultural producers. Cereal/horticulture production achieves the highest overall income in Portugal but farms would experience a dramatic fall in income by the second year of conversion and whilst income rises sharply in Year 3, this represents only a marginal increase over the conventional position. Thus, Portuguese producers in this sector need to consider carefully the likely loss of earnings during conversion. Cereal producers in Denmark have the lowest FFI per hectare of all countries and although this does not improve much after conversion, the percentage increase suggests conversion may still be financially worthwhile. The absolute increase in income is highest for Italian producers followed by UK and Irish producers but percentage increase over conventional production indicates that UK and Italian farmers improve their financial performance to a greater extent than their Irish counterparts.

Meat producers. Profitability for meat producers again varies, with an average current financial loss in the UK, and very low income in Italy. But whereas UK producers benefit considerably from conversion, rising out of deficit to a considerable profit, their Italian counterparts do not and organic status exacerbates their financial position leading to a reduction in income. However, it is the Portuguese farmers that would experience the largest reduction in income following conversion, leading to a considerable financial loss per hectare. Although absolute income does not increase as much as in the UK, organic Irish meat production appears to be the most economically viable of all study countries.

Milk producers. For milk producers (no data was obtained in this sector for Italy or Denmark), organic conversion in the UK offers a reasonable increase in income, whilst little difference was noted between the conventional and organic scenarios in Ireland. Portuguese dairy farmers also appear to experience an increase in FFI once they have converted.

Table 4. Total Family Farm Income changes before, during and after conversion by product sector and country (Euros/ha)

	Current	Conversion	Organic	Change	Change (%)
Cereals/Horticulture
UK	247	277	481	234	95
Ireland	808	721	1003	195	24
Portugal	1501	744	1561	60	4
Denmark	16	37	44	28	175
Italy	202	375	526	324	160
Meat
UK	-28	68	117	145	––
Ireland	261	360	346	85	33
Portugal	98		-164	-262	––
Denmark	73	43	98	25	34
Italy	27		18	-9	––
Dairy
UK	310	196	513	203	66
Ireland	454	440	475	21	5
Portugal	2386		2736	350	15

Premiums and subsidies received

In Portugal, obtaining market premiums is considered an important element of conversion by large farms selling general commodity products. The main recipients of subsidies are large extensive farms, and subsides are also more important than premiums for small intensive farms selling locally differentiated products. In the UK and Denmark, although conversion support payments help to maintain incomes during the conversion period, FFI once organic is heavily reliant on price premiums for organic produce. Many Italian farms convert solely for the conversion subsidies they can claim, often receiving little or no organic premium for their produce for, on average, conversion subsidies contribute 37% of total revenue during the conversion period. In Ireland, conversion payments are the most important factor maintaining livestock farm incomes both during conversion and when organic but Irish crop and vegetable producers are dependent on organic premiums received. Farms dependent on premiums are more vulnerable because even small reductions in premium result in large reduction in FFI as illustrated by price sensitivity analysis.

Figure 5 shows the average conversion subsidies received per ha of land converted for the second year of the conversion period. Italian crop farmers (those with cereals, fodder, olives, vines and nurseries) received the highest payment per ha converted, €529. This reflects the high proportion of case study producers growing permanent crops, which receive the highest conversion subsidy. Portuguese meat farmers received the lowest conversion subsidy, €48 per ha converted. However, these were extensive farms with a high proportion of permanent pasture, which receives a fairly low conversion subsidy.

Figure 5. Average subsidies received for the second year of the conversion period by product sector for each country (Euros/ha of land converted)

Perceptions of conversion to organic farming

Recent studies have tended to give a positive economic perspective on conversion to organic production. For example, findings from field studies conducted by CWS Agriculture in the UK between 1989-1997 revealed that organic farming can be as profitable as conventional, although economic viability relied on the achievement of significant price premiums (Leake, 1999). Nevertheless, farmer perception of the contribution that incentives make is also important, regardless of the validity of these perceptions. Perceptions that organic farming is not commercially viable, and that government financial support is too low, are widely reported barriers affecting conversion rates (see, for example, Padel and Lampkin, 1994; Caspell and Creed, 2000). Uncertainty over long-term government policy towards organic agriculture, and market prospects, further exacerbates the situation. The extent to which perceptions accurately reflect the market reality is influenced also by how, and how well, producers are informed.

Comparison of coded responses to open-ended questions in Part A of the interview schedule revealed the profile shown below of: farmer motivation to farm organically (benefits); farmer perception of organic farming (changes required - Figure 6); problems associated with converting (barriers) and sources of information on organic agriculture in the study countries:

Benefits

· Financial Gain from organic farming accounted for over 40% of responses in Ireland and around 20% in the UK and Portugal;

· Improved environment was the most important benefit for Portuguese farmers;

· Product quality was an important benefit mainly in Italy but also in Portugal;

· Personal gratification was not seen as a benefit in Portugal and seldom in Ireland, although in the other countries it accounted for around 20-40% of responses;

· Improved farming was perceived to be an important benefit of organic farming in Ireland and to some extent in the UK and Denmark;

Changes

· Inputs changes were cited as the main requirement for conversion in over 80% of responses from Irish farmers and around 60% of UK and Danish responses. Although of lower mention in Italy and Portugal, these still accounted for around 25% of responses;

· Monetary and Output changes each made up some 10% of responses in Portugal and Italy;

· Competitiveness was seen as a requirement for conversion mainly in Portugal but to some extent in Denmark and Italy also;

· Legislation comprised nearly 20% of responses in the UK and Italy.

Barriers

· Technical concerns were the most widespread perceived problem of conversion ranging from nearly 30% of responses in Italy to 50% in Ireland and Denmark;

• Financial concerns represented around 20% of perceived problems across countries;
• Labour concerns were not really seen as a problem;
• Marketing issues were a problem for Italian, Portuguese and Irish farmers;
• Administration was quite an important problem for UK and Italian producers;

· Personal issues were not seen as a problem at all in Ireland and Portugal and accounted for less than 10% of responses in the other countries.

Sources of information

· Support Groups were clearly the most widely used information source although this broad category included many public and private sector stakeholders;

· Printed media was important for Irish producers (over 30% of responses) and to a lesser degree for Italian and Portuguese producers;

• Audio and electronic media were not important in any of the study countries;

Meta-analysis, summarised in Figure 7, of aggregated frequencies across countries provided an overview of the role of contributory factors in relation to benefits, changes and barriers to conversion. It showed that:

· ‘The product’ is seen equally as a benefit and a problem, in terms of marketing the product;

· Personal issues (lifestyle and beliefs) are an important motivating factor but are rarely seen to impede successful conversion;

· Technical changes appear neutral in terms of benefits but account for nearly half of the responses concerned with requirements for converting and potential barriers to the process.

· Finance is the one dimension that straddles perceived benefits, changes required and barriers to these; with about a third of responses in each category related to financial matters.

· Legislation, and paperwork are perceived equally as a requirement and a problem.

Figure 6. Comparison of farmer perceptions about organic farming

Figure 7. Relative importance of underlying factors behind case study farmers' perceptions about organic farming across countries

The result of PCA showed that two Principal Components explained about 50% of the difference between attitudes in study countries. There was a clear difference in attitude between Danish and UK farmers on the one hand and those in the other study countries on the other, demonstrating a clear country effect. Most Danish farmers, and many UK farmers, agreed less than farmers from the other countries with statements relating to the quality of products, animal welfare and environment under organic farming. Danish and UK farmers also agreed that information about organic farming is sufficient and available from a range of sources––colleges, authorities and consultants. Whereas, for most farmers in Italy, Portugal and Ireland quality and environmental attributes remain important associations with organic farming, there continues to be a paucity of information on organic farming for farmers in these countries. The use of PCA therefore provided a snapshot of the differences in attitudes between farmers considering conversion to organic farming in the different study countries and it indicated that farmers in Denmark and the UK are more likely than farmers in Ireland and the south European countries, Portugal and Italy, to prioritise production and financial aspects of practising organic farming. These findings confirmed the preliminary analysis of mean scores.

Conclusions

The above comparison of the practice of conversion to organic farming in five EU member states reveals the wide diversity of support systems. Although these are in part necessitated by the diversity of enterprises suitable to different geographical locations, variation can also be assumed to result from different political agendas. Clearly, although the EC requires member states to support conversion, member states prioritise organic farming differently despite the clear proven public good benefits (such as wildlife and environmental enhancement) that result. This is despite the fact that it is emerging that the monetary value of these benefits amounts to a significant proportion of support.

Variation is also seen in farmer attitudes to organic farming. However, there are clearly concerns across countries in the financial benefits of, inputs changes for, and technical barriers to organic farming. Thus, in order to understand current movements in, and out of, organic farming more fully it is necessary to take a closer look at each of the countries here compared and to understand conversion within the national context.

Acknowledgement

The research team acknowledges the financial support of the European Commission for a research project entitled ‘Overcoming barriers to conversion to organic farming through markets for conversion grade products’ (QLK5-2000-01112). Without this support this work would not have been possible. However, the opinions expressed in this paper are those of the authors and do not necessarily reflect those of the Commission. Address for correspondence: Centre for Agricultural Strategy. School of Agriculture, Policy and Development, The University of Reading, PO Box 237, Reading, RG6 6AR, UK; Tel: +44 (0) 118 931 8150/2; Email: casagri@reading.ac.uk.

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1 Breeding Livestock Stock Appreciation