ECONOMICS OF ORGANIC PRODUCE

The primary economic characteristic of organic produce is its inelasticity of supply, as compared to products derived from the extraction of inorganic and fossil materials. This is illustrated by the current high prices and scarcity of organic produce. Expansion of supply can only be achieved incrementally, by gradual steps in that direction. Investment in organic production is, even to a greater degree than conventional, a long-term commitment. This is chiefly due to the delay between investment and return; the producer has to invest in the cultivation of a crop long before any profits are obtained from that investment. These lead-times range from 6 months for quick-growing crops, such as salads, to the average of one year for most vegetable main crops, all the way up to 5-10 years before such perennial crops as soft and top-fruit, nuts or asparagus return a profit to the grower. Although investment in organic production is a necessarily long-term commitment, the rates of return are compatible to or actually better than mainstream financial investments, over the full lifetime of that investment.

As with any investment, assessment of the suitability, achievability and accurate predictions of the profitability of certain outputs within the given parameters on a specific site are crucial to the long-term success of a certain enterprise. Amongst the many factors which need to be considered to make such assessments are whether the qualities of the specific site, soil and local climate are appropriate for the crops proposed. The next most important considerations would be the accessibility of a market for the produce and the need for processing prior to sale. This inelasticity of supply is exacerbated by the necessarily long lead-in times required for organic conversion and certification. These currently act as a disincentive to conventional producers to convert as they forego or reduce income for 18 months, although they can still obtain a premium for produce grown whilst in conversion. The typical pattern of conversion has been to convert a fraction of a holding each year over several years, as the grower gains confidence in new techniques and markets and to spread costs and lost income over as long a period as possible.

Higher levels of support for producers willing to convert would encourage more to do so at a quicker rate. At the level of individual and even community scale organic food production, there exists very little threat of direct or adverse competition to established food delivery systems. Even if this sector was fully mobilised to its maximum potential, it would only displace a small fraction of the existing market in a limited range of fresh, seasonal produce. It could even benefit existing distributors such as supermarket chains, by developing new suppliers and superior products. The major chains are presently assessing the viability of sourcing a fraction of their produce from the area local to their outlets, in response to public demand and potentially as a requirement of planning permission.

Extract from SOFI – its formation 1998.

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