Economics of Organic Farming

Organic farming is the need of the hour for sustainability of agriculture amidst growing health consciousness and environmental concerns. It provides more employment to rural people through replacement of costly chemical inputs with composting, weeding and inter-cropping. It also symbolizes a newfangled opportunity for small farmers who lack the resources (fertilizers and pesticides) to do conventional farming.

To meet the increasing demand for food, the farming community has been resorting to intensive cultivation practices with the help of fertilizers, pesticides and other external means to enhance food production. Though these have helped to increase farm output to some extent, they are more than responsible for the contamination of soil, water, and the environment in general. In the process, the farming community has been witnessing a slow degradation of healthy soil and this finally led to a decrease in the yield. On the other hand, the increasing awareness of health hazards caused by agrochemicals has brought a major shift in consumer preferences, especially in developed countries. They are increasingly shifting towards organic food, which is considered secure and hazard-free. Moreover, there are environmental concerns like the need to sustain farm production and improve soil fertility. Against this background, organic farming has become an increasingly important segment of the agriculture sector of many countries. Organic farming is a system that depends on ecosystem management rather than external methods for increasing agricultural production. It protects the environment and the community by excluding synthetic fertilizers and pesticides and Genetically Modified Organisms (GMOs). These inputs are replaced with accurate management practices by taking into account regional conditions to boost soil fertility and prevent pests and diseases in the long run. According to the Food and Agriculture Organization (FAO), “Organic agriculture is a holistic production management system which promotes and enhances the health of the agro-ecosystem, including biodiversity, biological cycles, and soil biological activity. Organic production systems are based on specific and precise standards of production which aim at achieving optimal agro-ecosystems which are socially, ecologically and economically sustainable.” Going by these benefits, over 130 countries produce certified organic products in commercial quantities. The share of agricultural land continues to grow not only in the major markets like Europe and North America but also in many other developing countries.

The Road to Growth

Amidst growing health consciousness, environmental concerns and food security the demand for organic food is steadily increasing in both developed and developing countries with an annual growth rate of 20-25%. According to the London-based Organic Monitor report, in 2005, the highest growth rate in organic food sales was recorded in North America, where as the most West European countries registered a low growth rate of 5%. However, the Asia-Pacific region, Latin America and Eastern Europe showed a high percentage growth. The European market is the largest single market after the US for organic foods, while Germany remained the leader in Europe.

The report says, “The extension of the range of organic products offered by the retail trade and the opening of more organic supermarkets will also ensure regular growth throughout Europe in the coming years.” The market for organic products is expected to grow up to $102 bn by 2020. The demand for organic food is also increasing in several developing countries, including India, and is creating export opportunities for the developing world. Organic farming is being practiced in most of the countries in the world and its share in agricultural land and farming is also steadily increasing.

Improper use of fertilizers and pesticides has a negative effect on agriculture, especially fruits and vegetables, drinking water, health, nutrition, and the environment as a whole. Besides leading to nitrate enrichment in ground waters, river waters and release of nitrous oxide and ammonia into the atmosphere, it leads to acid rain and depletion of the ozone layer. These effects have typically been observed in the US, the European Union, Canada, Australia, etc. 

Organic vs. Conventional Farming

Certified organic products are more expensive than their conventional counterparts, and their supply is nowhere near the demand. Moreover, their production cost is very high because of labor-intensive inputs. The post-harvest handling of relatively small quantities of organic foods results in higher costs particularly for processing and transportation. In short, achieving economies of scale is very difficult. On the marketing and distribution front, as the volume of organic food production is very less, it leads to relative inefficiencies and higher costs.

While organic farming has been found to be more profitable and productive in small farm holdings, conventional farming gives better results in the case of bigger farm holdings to enhance crop production. However, there are several adverse effects associated with conventional farming. The organically cultivated soil has appreciably superior organic matter content, thicker topsoil, higher polysaccharide content, lower modulus of rupture and less soil erosion than the conventionally cultivated soil.

Hence, in the long-term, organic farming is more efficient than conventional farming in reducing soil erosion and, consequently, in maintaining soil productivity. Besides, organic farming provides more employment to rural people through replacement of costly chemical inputs with composting, weeding and intercropping.

The farmers don’t need to buy costly fertilizers, pesticides and herbicides that were normally used in conventional farming. Organic farming also symbolizes a newfangled opportunity for small farmers who lack the resources (fertilizers and pesticides) to do conventional farming.

Global hunger and poverty are the focal issues behind organic farming. Cultivation by means of organic farming is the foremost solution to eradicate global starvation. Professor Jules Pretty, Director of the Center for Environment and Society at the University of Essex, says, “So many examples from around the world of increase in the yield, when farmers replaced synthetic chemicals and shifted to organic/sustainable methods.” He further adds, “Farmers are finding that they can cut their inputs of costly pesticides and fertilizers substantially, varying from 20 to 80%, and be financially better off. Yields do fall, to begin with (by 10 to 15%, typically), but there is compelling evidence that they soon rise and go on increasing. For example, in the US, top quarter of sustainable agriculture farmers now have higher yields than conventional farmers, as well as a much lower negative impact on the environment.” It is a feasible solution to avert global starvation since it augments yields, entails only low inputs that are cost-effective and affordable because it does not require any expensive technical investment and it provides further employment in rural areas, which helps to reduce urban migration.

The Challenges

Despite all the benefits of organic farming, there are a few challenges that are needed to be addressed. Organically produced food is costlier by at least 25%, which is more than conventionally produced food. PD Sharma, Assistant Director General, Natural Resource Management, ICAR, says, “Organic farming cannot be practiced on a large scale as we simply don’t have the resources. We don’t have enough natural inputs like manure, fertilizers, compost, etc”. Only in rain-fed conditions and small-size land holdings can organic farming bestow good results: In the case of intensive farming systems and irrigated conditions it bestows distressing results. Lack of information is also observed as a major obstacle.

Support from institutions to farmers in developing countries during pre-production, production, post-production and marketing process is also observed as a major obstacle. At present, organic farming in India is being practiced in only 0.03% of its total cultivable land of around 40,000 hectares.

It’s only now that farmers have started using the method of organic farming. However, organic farming remains largely unorganized as farmers require more scientific knowledge, management and certification systems.

India’s Potential

Experts say that the development of organic agriculture in the developing countries like India was induced by the frequent demand for such foods by the industrial countries. However, India is becoming independent and is serving the growing demand in the country itself. In fact, organic farming in India is experiencing a real boom and the country has tremendous potential to grow crops organically and emerge as a chief provider of organic products in the international market. In India, organic farming is a market that is demand-oriented; if organic farming is properly planned and executed, it will become an important foreign exchange earner and money-spinner for the farmers. According to experts, “For many Indian farmers, the approach seems to offer a new option for ensuring their livelihood, as they can reduce production costs and, at the same time, gain access to markets with better prices for their products.”

However, organic sector in the country is still speckled and its development lags far behind its actual potential. According to official sources, “The main bottleneck is development of markets. While India could have a growing share in supplying export markets, the Indian domestic market for organic food appears as a ‘sleeping giant’, which needs to be awakened.” Organic farming in India needs minute attention to market intelligence regarding which crops to grow, where to sell, distribution channels, competition, market access, etc. Pre-harvest prices should be announced so that farmers do not face hardships when the produce is ready. Adopting contract farming is also other avenue for better results. In order to put up a lucid strategy on organic farming and its connection with markets, IFAD suggests, “Carefully integrating the private sector to provide marketing services, developing farmland communities will be vital to develop the organic market. This will help reduce the cost of certification, and improve the prospects of marketing.”

Against this environment, the government has started the National Programme on Organic Production (NPOP) under the Ministry of Agriculture to promote organic farming by reducing the costs of organic fruits and vegetables. The Department of Agriculture and Cooperation has launched a scheme—National Project on Organic Farming (NPOF)—which is to be implemented during the 10th Five-year Plan with an expenditure of Rs.57.05 cr for production, promotion, certification and market development of organic farming in the country. It advocates that an area and cluster-based approach can be adopted by the state governments, which will aid in concentrating the target groups’ activities and help in educating farmers. There is also a need to identify and assign ample number of committed service providers who will perform acts such as transfer of technology to identified farmers and connect the certification agencies with the farmers.

Outlook

As there is a rise in health consciousness and concern for the environment, there is no doubt that organic farming is going to be the fastest growing food sector. The price premiums and growing demand for organic products are encouraging more and more farmers to enter the realm of organic farming. According to experts, “This leads to an increased engagement in farming, which can trigger greater opportunities for rural employment and economic upliftment. Thus, conversion to organic agriculture definitely contributes to the empowerment of farmers and local communities.” With the availability of modest technologies and the necessary support for post-harvesting and marketing chain, organic farming is gaining momentum and its structure may change dramatically in the coming years. To conclude, organic farming is the need of the hour for sustainability of agriculture as it is the most capable, quickest, big money-spinning and fairest means to nourish the world.

N Janardhan Rao, Senior Economist.