- 1.2.1 Soil Quality and Financial Performance of Biodynamic and Conventional Farms in New Zealand.
- Reganold, J P, Palmer, A S, Lockhart, J C, & Macgregor, A N (1993). Science, 260. (344-349).
- 1.2.5 Conclusion
1.2 Evaluation of the Financial Structure for Organic Farming Including an Evaluation of the Current and Projected Costs, Benefits and Profitability
The economic structure of organic farming is characterised by two types of farms. The traditional organic farm generally supplying the domestic market and likely to be mixed farming type, especially market gardening. In New Zealand, as in other countries, many of these producers adopted organic production techniques largely because of a philosophical viewpoint (Lamb, 1994). Motivation was based on concern for the environment or because of a lifestyle decision, and certainly not because of strong financial incentives. The second type of farm is generally aiming at production for the export sector. The number of these farms has grown since early 1990 with a number of large processing companies such as Wattie Frozen Foods (WFF) and New Zealand Kiwifruit Marketing Board (NZKMB) marketing organic produce. These farms are of two kinds; those producing permanent crops and those on broadacre production systems where the export crop is rotated with other crops. A main limitation for these farms is finding organic markets for the other crops to complete their rotations.
In the early 1990s the increase in exports attracted a number of conventional farmers into organic production. Initial success in targeting overseas niche markets presented processing companies with the need to encourage a continuity of supply from growers and also to recruit conventional farmers into organic production.
In assessing the financial performance of organic farmers there are few comparative studies of conventional and organic farming practices. There are a number of overseas studies evaluating the profitability of organic compared to conventional farming, for example, Lockeretz et al. (1981), Domanico et al. (1988), Buttel et al. (1986), Cacek and Langner (1986), Haystead (1987), and Sahs et al. (1988). In general, however, these studies tend to indicate that on average, organic systems perform the same as conventionally farmed enterprises. The range of returns on organic farms tends to be greater than that for conventional farms and where organic farms show higher than average returns these are often due to additional marketing or processing of the produce. However, it must be emphasised that these studies are generally of mixed organic farms servicing domestic niche markets unlike the NZ export sector.
In New Zealand data is mainly available for specific products produced primarily for the export sector, that is peas, sweetcorn and kiwifruit the results of which are presented below. This analysis is limited given the confidential nature of much of the information. However, a study comparing different farm types was also available and is presented first.
1.2.1 Soil Quality and Financial Performance of Biodynamic and Conventional Farms in
New Zealand.
Reganold, J P, Palmer, A S, Lockhart, J C, & Macgregor, A N (1993). Science,
260. (344-349).
In their study of soil quality and financial performance of biodynamic with both conventional farms and MAF model farms in New Zealand, Reganold et al. (1993) examined soil properties and financial performance on pairs or sets of biodynamic and conventional systems over the four year period, 1987-1991, on the North Island of New Zealand.
The farm pairs or sets included a range of representative farming enterprises including; market garden vegetables, pip fruit, citrus, grain, livestock, and dairy. Farms in each pair or set had the same crop and livestock enterprise. Much of this research was to assess differences in environmental and physical variables, the results of which are discussed in Section 1.4. It is the financial comparison which is reported here.
The financial accounts from 1987 to 1991 were analysed and found that most of the products from the biodynamic farms were sold as certified organic or biodynamic at a premium price up to 25 per cent higher than the market price of a similar conventional product.
Total gross margins on conventional farms were higher than on biodynamic farms. However, gross margins per hectare were greater on biodynamic livestock farms than conventional farms, whereas gross margins per hectare were higher on other conventional farm types. No data was available on citrus farms and dairy farm set one.
In comparing biodynamic farms with MAF model farms only the biodynamic dairy farm set two had a higher total gross margin than the model farm. On a per hectare basis biodynamic citrus, livestock and dairy farm set one had higher gross margins than conventional farms, no data was available for market gardens.
Interestingly, especially when compared to other studies, biodynamic farms had less year-to-year variability in gross margin than did the conventional farms.
Annual returns per hectare for the biodynamic market garden had increased consistently over the four year period because of the development of markets and improved productivity and farm management practices.
1.2.2 The Production and Marketing of Organic Food:
An analysis of organic pea production and consumer purchase determinants. Lamb, C.G. (1994).
Presented to 10th International Organic Agriculture IFOAM Conference.
In this study Lamb, (1994) examined the relative performance of organic and conventional pea growers using data envelope analysis (DEA) in Canterbury, New Zealand over the 1992/93 and 1993/94 seasons.
Organic producers were found to have a greater variation in both costs and return, than conventional production systems (figure 1.1). Moreover, organic production also exhibited higher potential returns whilst the average return over the entire group was four per cent less than the conventional system. Average costs for the organic system, however, were nine per cent higher than the conventional system.
Regarding relative efficiency in terms of input utilisation relative to output production, the conventional farming system has a higher level of average efficiency (90 per cent) compared with the organic system (67 per cent).
In terms of overall financial performance Lamb (1994) found that conventional pea growers performed slightly better than the organic system where conventional growers had an average net return $1060 ha. and organic growers of $1019 ha. However, the gross average return for organic farmers ($1825 per ha.) is higher than that of the conventional farmers ($1799 per ha.). These differences were explained by organic farmers having higher cost structures ($805 per ha.) on average, than their conventional counterparts ($730 per ha.).
In summary Lamb suggested that competent organic farmers who payed close attention to their management practices were likely to perform better financially than conventional farmers.
1.2.3 Organic Kiwifruit Production.
Campbell, H, Fairweather, J and Steven, D (1997) Recent Developments in Organic Food Production in NZ: Part 2, Kiwifruit in the Bay of Plenty. Studies in Rural Sustainability, Research Report No 2, Department of Anthropology, Otago University
All kiwifruit exported from New Zealand is handled by the Kiwifruit Marketing Board (NZKMB). As exporting involves the vast majority of kiwifruit produced in New Zealand the figures available from the NZKMB can provide accurate data on the relative performance of organic and non-organic kiwifruit orchards.
Campbell et al. (1997), in their study of organic production in the kiwifruit industry, compared the economic performance of organic with both conventional and Kiwigreen (a low input Integrated Pest Management system) production systems. Their results were then compared to in-house industry research on paired groups of organic and Kiwigreen orchards conducted in 1996. These results are reported in detail in Appendix 2 and summarised below.
Input costs on organic kiwifruit orchards are slightly higher than on conventional orchards. While organic orchardists save on herbicide costs, the use of 'soft' (but expensive) Bacillus thuringiensis (Bt) sprays and mineral oil sprays cancel out any savings that might be made on this kind of input. Organic kiwifruit producers also tend to buy fertiliser from certified organic suppliers rather than composting on their own orchards. This fertiliser is applied at 1.5 to 2 times the rate of conventional fertilisers. On top of this, the cost of BIOGRO inspection and certification must also be considered. The result is that organic kiwifruit orchards bear between 10-20 per cent higher input costs.
Premiums paid to organic kiwifruit growers supplying the organic export pool are significantly higher than the conventional payout per tray. Since 1991, premiums have ranged from a low of 26 per cent in 1994 to a high of 89 per cent in 1992. Final estimates for the 1996 harvest indicate a premium of around 72 per cent.
Yields per hectare can be assessed from two sources - Campbell et al. (1997) who surveyed 48 organic and non-organic kiwifruit growers, and NZKMB in-house figures. Both sources indicate that organic growers experience a reduced yield per hectare - mainly attributed to the non-use of HiCane on vines prior to budburst by organic growers. The results from Campbell et al. (1997) suggested a reduction in yield of 20 per cent when using organic systems. In-house research using a larger sample of paired orchards found that the yield reduction was less than the Campbell et al. (1997) figure and was between 15-18 per cent lower for organic production.
The final results obtained from these two sources were very similar. While Campbell et al. (1997) had to estimate input costs, in-house industry research provided more concrete data from the group of paired organic and Kiwigreen orchards. While the details of this information is not publicly available, the bottom line in terms of economic performance was that the organic group substantially outperformed the Kiwigreen group. Net returns per hectare were between $5500 and $6500 higher for the organic group. Even when this is balanced against a slightly smaller average organic orchard size, the results for organic kiwifruit production were very positive.
1.2.4 Wattie Frozen Food (WFF) Gisborne Crop Gross Margin Report:
A Comparison of Conventional, Organic Transitional Produce, and Organically Produced Sweetcorn (1997). Unpublished report.
In their study, WFF compared the financial performance of sets of organic, transitionally organic, and conventional producers of sweetcorn over the 1995/96 season. To evaluate financial performance, WFF examined farmers= annual reports for the one season. Fixed costs were excluded from WFF report and analysis of gross margin was used as a measure of financial performance. This is due to the different levels of debt servicing, ownership structure and other fixed costs.
The premium price was 84 per cent for organic and 73 per cent for transitional organic sweetcorn, as reported in Table 1.5. The yield from organic farms, (including transitional), was estimated to be 13 per cent lower than for conventionally produced sweetcorn.
Table 1.5: A Comparison of Estimated Financial Accounts for Conventional,
Transitional, and Organic Sweetcorn 1995/6
| Harvest | Conventional | Transitional | Organic |
| Income/tonne @ 16 km | 113.94 | 200.00 | 220.00 |
| Other income/tonne | 10.25 | 14.00 | 8.80 |
| Yield/hectare | 17.00 | 15.00 | 15.00 |
| Expenses/hectare |
| Cultivation | 507.95 | 740.70 | 740.70 |
| Seed & Planting | 232.29 | 236.24 | 218.20 |
| Fertiliser | 238.60 | 484.34 | 484.34 |
| Weed Control | 163.75 | 80.00 | 80.00 |
| Pest & Disease Control | 42.58 | 176.28 | 176.28 |
| Other | 0.00 | 72.06 | 36.47 |
| Total direct cost/ha | 1185.17 | 1789.61 | 1735.99 |
| Total income/ha | 2111.31 | 3210.00 | 3432.00 |
| Gross margin/ha | 926.14 | 1420.39 | 1696.01 |
| Gross margin/tonne | 54.48 | 94.69 | 113.07 |
| Net margin/ha | 926.14 | 1420.39 | 1696.01 |
| Net margin/tonne | 54.48 | 94.69 | 113.07 |
Therefore, income from organically produced sweetcorn was nearly double that for conventionally produced sweetcorn. In the case of transitional sweetcorn production income was approximately 75 per cent higher than that for conventionally produced sweetcorn. Regarding total direct costs per hectare, as illustrated in Table 1.5, organically produced sweetcorn was about 50 per cent higher than conventional production.
The gross margins per tonne for both types of organically grown sweetcorn were considerably higher than that of conventional sweetcorn. Organic was $113 per tonne, organic transitional produce was $95 per tonne, with conventional only $54 per tonne. Gross margin per hectare for both types of organically grown sweetcorn were also estimated to be higher than that of conventional sweetcorn. Gross margin per hectare for organic was $1,696 per hectare, transitional $1,420 per hectare and conventional $926 per hectare.
A more detailed analysis of the cost structure of the three types of production systems is illustrated in Appendix A.2. This shows that organic farms have higher per unit costs for cultivation and fertiliser but lower for weeding, seeding and planting.
1.2.5 Conclusion
The information on the economic structure of organic farming is very limited and must be seen as important impediment for those who may wish to convert. Whilst more information may be available this is not in the public domain. Care should be taken when interpreting the gross margins since previous management practices are not known and thus may not reflect long term trends.
From the studies above it can be seen organic farming does offer the potential to increase returns. For kiwifruit and sweetcorn margins were greater although the evidence from whole farm comparisons and peas was less clear. One of the main problems in developing the profitability of the sector was the production of commodities to fit in with broadacre rotations, particularly for livestock.
Contact for Enquiries
Kay Brown
Sector Performance Policy
MAF Policy
Ministry of Agriculture and Forestry
PO Box 2526
Wellington
NEW ZEALAND
Phone: +64 4 894 0695
Fax: +64 4 4 894 0746
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