The economics of organic agriculture

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The economics of organic agriculture does climate make a difference ?
Series Title:
Staff paper
Canler, Edward E., 1951-
Colette, W. Arden
Place of Publication:
Food and Resource Economics Dept., Institute of Food and Agricultural Sciences, University of Florida
Publication Date:
Physical Description:
10 p. : ; 28 cm.


Subjects / Keywords:
Crops and climate -- Florida ( lcsh )
Organic farming -- Economic aspects -- Florida ( lcsh )
Vegetables -- Economic aspects -- Florida ( lcsh )
non-fiction ( marcgt )


Includes bibliographical references.
General Note:
"June 1980."
Staff paper (University of Florida. Food and Resource Economics Dept.) ;
Statement of Responsibility:
by E. Canler and W. Arden Colette.

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Copyright 2005, Board of Trustees, University
of Florida



E. Canler* and W. Arden Colette

Staff Paper 156

June 1980

Presented as a selected paper at the Annual Meeting
of the American Agricultural Economics Association,
University of Illinois, Urbana, Illinois, July 27-30,

Staff Papers are circulated without formal review by
the Food and Resource Economics Department. Content
is the sole responsibility of the author.

*The authors are Graduate Research Assistant and Associate
Professor, respectively, in the Food and Resource Economics
Department, University of Florida.

Food and Resource Economics Department
Institute of Food and Agricultural Sciences
University of Florida
Gainesville, Florida 32611


The Economics of Organic Agriculture:
Does Climate Make a Difference?

Previous studies favorably compare organic with conventional pro-
duction techniques, but do not consider climatic impacts on organic crop
response. Organic vegetable production is analyzed under rigorous
climatic conditions in Florida. Unit production cost was reduced by
organic methods in only one of seven crops. Labor-intensive organic
production is commercially infeasible in the study area.

The Economics of Organic Agriculture:
Does Climate Make a Difference?


Organic agricultural production practices have been a focus of pub-

lic interest and attention in recent years. This form of production ex-

cludes the use of commercial fertilizer formulas and synthetic pesticides.

This rising interest can be attributed to three basic reasons. First,

the environmental social movement has focused attention on the release of

fertilizer and pesticide residues into the environment. Concern has also

been expressed about the wholesomeness of food produced with the use of

commercial fertilizers and pesticides. "Health food" stores have opened

up in many places retailing organically grown products. Second, the en-

ergy shortage has focused attention on production alternatives which sub-

stitute other forms of energy, including human energy, for fossil fuel

energy inputs. Third, an increasing number of individuals desirous of

more natural work and surroundings are interested in entering farm pro-

duction. Organic production is often seen as a low cost, nonpolluting

way to produce wholesome foods.

The increased public interest has been followed by economic studies

of organic production. Klepper,, reported that crop production

returns on the average were not very different between organic and con-

ventional farms in a Midwest sample. However, energy intensiveness

measured either on a per dollar of output or on a per acre basis was low-

er for the organic group. Oelhaf reported little difference in farm

prices for organic fruits and vegetables in California compared to those

conventionally produced. Farm prices for grains were ten percent higher

for the organically grown. The study estimated the cost of conversion

to organic production would total about $4 billion for the farm sector.

This cost was translated to a 3.3 percent average rise in food prices.

Most of these studies dealing with the biology and/or economics

of organic production have limited themselves to investigations in tem-

perate climates. The long frost periods in the temperate zones act as a

natural restraint in the reproduction of insect and disease agents. On

the other hand, warm and semi-tropical areas of the country face an

almost continuous presence and reproduction of these agents. Thus, the

potential for yield reducing infestations is higher, and production suf-

fers differentially higher damage as a result of any deficiencies in or-

ganic pest and disease control. The economic feasibility of organic pro-

duction in warm and semi-tropical areas and its comparative advantages

relative to both conventional and organic production in temperate zones

would depend largely on the effectiveness of organic pest and disease


In order to assess the economic performance of organic production

in more rigorous climates, a comparative analysis was undertaken for one

organic system relative to conventional practices. The biodynamic/French

intensive system of horticulture was selected for organic production,

since its cultural practices facilitate entry into production by those

interested in organic techniques. Its labor intensive practices greatly

reduce capital requirements by eliminating the use of almost all

machinery. Organic matter and compost are the sole sources of fertil- ;

ization. Pest control techniques rely on the avoidance of monoculture in the

planting area and on proper soil fertility and conditioning. The system's

cultural practices are purported to give the cultured plant pest and

disease resistant health (Jeavons, pp.70-71), thereby eliminating the

need for synthetic chemicals. High plant populations in planting beds

prepared with hand tools are also purported to reduce land requirements.


Production relationships represent the climatic and agricultural

conditions observed in Manatee County, Florida. Located in southwest

Florida, the area is subject only to a short frost period during the

mid-winter months and is one of the most important late fall and early

spring vegetable producing regions of the United States. The crops

included in the study are tomatoes, green peppers, cucumbers, squash,

collards, cabbage and strawberries. All are grown commercially in the


The analysis incorporates a producing unit of nine acres. Nine

arces correspond to the upper limit of the smallest physical category

reported by the Census of Agriculture. This small-scale unit is assumed

to be a more likely alternative than larger units for those considering

entry into organic vegetable production.

Data on conventional cultural practices for small-scale producers

were obtained from Levins and Downs. Additional data was obtained from

surveys of area producers and production and marketing publications

(Colette; Florida Crop and Livestock Reporting Service).

The absence of organic commercial vegetable production in Florida

presented informational problems, since no data were available on or-

ganic cultural practices or yields. Interviews were conducted with

users of the biodynamic/French intensive system in California to facil-

itate a thorough knowledge of its practices. But it was necessary to

determine the limitations of organic production in semi-tropical Florida,

the necessary modifications of the system for Florida conditions, and

the yields to be expected in the study area in association with the


The Delphi technique was used to generate this information. The

Delphi technique is an approach for systematically developing expert

consensus. The concept is based on the premises that 1) the opinions

of experts are justified inputs to decision making where absolute answers

are unknown or impossible and 2) a consensus of experts will provide a

more accurate response than a single expert (Fusfeld and Foster) Inter-

views were conducted with experts in nematology, entomology, soil sciences

and vegetable crops. Additional interviews were conducted with personnel

in the Agricultural Research and Education Center in Manatee County. A

consensus became readily available.

The information generated with the Delphi technique made possible

the formulation of production budgets for the organic practices of the

biodynamic/French intensive system. The previously cited sources pro-

vided the necessary information for the formulation of production budgets

for conventional practices. A cost comparison analysis and activity

analysis were performed.

Linear Programming Activity Analysis

A linear programming model is used to estimate the income generating

potential of the organic and conventional systems under various levels

of resource availability. The objective function is the maximization of

net revenue:

Max NR = E P.q. c.q.
.1 1i
Subject to 1) E c.q. < K 2) Z d.q. < L 3) E < N
i i i

Where: P. = output price of the ith cropping activity
c. = total cash cost of the ith cropping activity
q = output of the ith cropping activity
d. = land use coefficient of the ith cropping activity
f. = labor use coefficient of the ith cropping activity
K = operating captial constraint
L = land constraint
N = labor constraint

This objective function represents the maximum cash on hand the farm fam-

ily would have at the end of a year of production after paying all cash

expenses. No allowance is made for either payments to family labor, or

returns to investment in land, machinery, buildings or operating capital.

Furthermore, 100 percent equity in all farm capital is assumed so that no

interest payments are included.

Output prices represent five year average prices during the harvest

period. All costs are adjusted to represent 1976 prices.

The resources analyzed include land, family labor, and operating

capital. Eight acres are assumed to be available for production. One

acre is reserved for homestead and wasteland. The three levels of family

labor correspond to one, two, and three man-years of 2000 hours each.

The three levels of operating capital considered are: $1,000, $5,000 and


Nine model variations are considered for both the biodynamic/French

intensive system and conventional practices. Each of the three levels

of capital is combined with each of the three levels of labor.


Information obtained through the Delphi technique identified inad-

equacies in organic pest and disease control. These deficiencies expose

the crops to the severe pest and disease conditions of semi-tropical

Manatee County resulting in differentially lower yields compared to con-

ventional practices.

Perhaps the most salient example of ineffective organic control are

nematodes. The sandy soils of much of Florida are a conducive habitat

for these pests. There are two popular organic means of control. One

is compost, which is purported to contain nematode-trapping fungi (Rodale,

p. 272). A Florida experiemnt incorporated organic matter into the soil

at rates as high as 50 tons per acre, but detected no fungal predation of

nematodes (Tarjan). Another popular organic control measure is the inter-

planting of marigolds with the crop (Jeavons, p. 68). In another exper-

iment African marigolds (Tagetes erecta) were interplanted among citrus

trees infested with the burrowing nematode (Radopholus similis) (Suit,

et. al.). The nematodes were not substantially eliminated although the

marigolds themselves did not suffer from nematode damage.

The interviewed panel of experts concluded that yields under organic

production practices would approximate the yields prevalent in commercial

production prior to World War II. Before 1941 little or no pesticides

were recommended for Florida vegetable crops while organic fertilization


was common (Spencer). Therefore, the yields assumed for organic production

of all crops except collards are state averages for the years 1935-1940.

Because no historical data were available for collards, a 35 percent

reduction from current yields was suggested.

Although organic production may benefit from some of the technolog-

ical and genetic changes that have occurred since the 1940's, there exist

no empirical means for adjusting yields for these factors. The reader

is free to adjust yields according to his evaluation of what the positive

effects might be.

Table 1 reports the comparative yield and cash cost data for organic

and conventional practices. Production costs for the organic system

are consistently lower in relation to conventional practices. However,

the suppressed yields of the organic system tend to result in a higher

cost per unit output. Only green peppers have a lower per unit cost

for organic compared to conventional production. The cost for collards

is the same for both systems.

These comparisons are not indicative of the total cost differentials

between the two systems, since labor, an unpaid factor of production

is much more intensively used in the biodynamic/French intensive system.

Therefore, the costs reported for organic production only partially re-

flect its level of resource use. Since all the variable costs of capital

are included, it follows that a more mechanized organic system would

compare more unfavorably with conventional practices.

To further compare the two systems, an analysis of year-to-year

yield variance was performed in order to assess risk differentials.

Table l.--Yields and costs for organically and conventionally produced vegetables in
Manatee County, Florida.

Cost of Organic
Organic Production Conventional Production Production Relative
Cash Cost Yield Cash Cost Cash Cost Yield Cash Cost to Conventional
Vegetable Per Acre Per Acre Per Unit Per Acre Per Acre Per Unit Production

Dollars Dollars Dollars Dollars Percent

Tomatoes 696.88 183 ctns. 3.81 1639.91 818 ctns. 2.00 191

Cabbage 524.08 215 crates 2.44 801.11 490 crates 1.63 150

Squash 314.45 59 bu. 5.33 481.87 150 bu. 3.21 166

Cucumbers 337.11 104 bu. 3.24 583.74 265 bu. 2.20 147

Peppers 898.02 272 bu. 3.30 1629.74 435 bu. 3.75 88

Collards 215.30 975 boxes 0.22 331.46 1500 boxes 0.22 100

berries 1144.48 272 flats 4.21 2716.86 1410 flats 1.93 218


Equally sized samples were used for the organic crop and its conventional

counterpart. The results are reported in Table 2. The variance for

organic peppers is found to be significantly higher (a = 0.10) relative

to conventional peppers. The variance for organic strawberries is found

to be lower relative to conventional strawberries. No significant differ-

ence is found between the two systems for all other crops. However, the

variation coefficient is higher for all organic yields. Thus, whether

risk differentials exist between systems will depend on a producer's

risk evaluation of absolute versus relative yield variability. If risk

is evaluated on a basis relative to mean yield, organic production will

be the higher risk alternative. If risk is evaluated on an absolute

variability basis, no generalized conclusions can be drawn.

In addition to these comparative results, the activity analysis

remains important because of the great differences in input mix between

systems. The analysis indicates the economic performance of the two

systems under a particular resource endowment. Potential organic pro-

ducers may be also willing to engage in organic production despite a

lower economic payoff. A great deal of satisfaction may be derived

from what is perceived as a more wholesome lifestyle and producing more

wholesome food. The activity analysis indicates the returns they can

expect with organic and conventional production, Table 3.

The results in Table 3 suggest that operating capital can be

severely constraining where conventional practices are used. Between

$5,000 and $10,000 are needed on a nine-acre farm to meet Florida's

1976 non-metropolitan median money income of $9,740 (Thompson, p. 135).

More than $5,000 in operating capital are needed to exceed the 1977

Table 2.--Variances and variation coefficients for organic and conventional yields.

Organic Yield Conventional Yield Organic Yield Conventional Yield
Crop Variance Variance Variation Coefficient Variation Coefficient

Tomatoes 6,487 22,077' 0.441 0.232

Cabbage 1,514 2,294 0.169 0.106

Peppers 6,985a 1,358 0.307 0.081

Cucumbers 1,314 371 0.318 0.075

berries 1,635a 18,796 0.148 0.099

a0rganic and conventional yields for the crop are significantly different at a = 0.10.

Table 3.-- Nt revenue naxirma, labor and operation capital use as a proportion of availability and shadow prices of operating
capital, labor and land using tie conventional cultural practices and the biodyntmic/French intensive system.

Operating Ilaximum Revenue Labor Use As A Operating capital use Maximum Shadow
Capital Labor Net Revenue Less Proportion Of As a Proportion of I'rce of Oper- Maximum Price Maximum Sha!ow
Constraint Constraint Maximum Depreciation Availability Availabllity acting Capital Price of Labor Price of Land

Man-vears Percent Percent Per hour Per acre

$ 1,000 1 $ 1,892.82 176.18 19.2 100.0 $ 1.70 $ 1.16 0
1,000 2 2,087.15 18.15 15.2 100.0 1.70 1.16 0
1,000 3 2,281.49 212.49 13.9 100.0 1.70 1.16 0
5,000 1 2,457.67 5388.67 17.5 100.0 1.30 2.87 0
5,000 2 8,332.55 6263.55 38.8 100.0 .1.31 2.12 $ 94.54
5,000 3 8,835.93 6766.93 25.6 100.0 1.31 2.12 94.54
10,000 1 8,195.06 6126.06 60.9 56.1 0 20.27 0
10,000 2 12,927.11 10,858.11 52.5 89.6 0 13.17 416.37
10,000 3 14,398.63 12,329.63 43.8 100.0 0.51 2.45 336.46

Biodynamic/French Intensive System
$ 1,000 1 246.50 246.80 55.8 34.8 0 0.60 0
1,000 2 495.09 495.09 55.8 69.8 0 0.60 0
1,000 3 723.00 723.00 54.3 100.0 0.42 0.50 0
5,000 3 743.38 743.38 55.8 21.0 0 0.60 0

aColette [1] has estimated the depreciation of a one-row equipment complement for small vegetable farms to be $2,069.

United States poverty income of $4,980 for a farm family of four (Thompson,

.p. 150)- It is also indicated that more labor than one person can pro-

vide is needed for production work during peak seasons in order to meet

the median income. Given these requirements under the condition of 100

percent equity, the result indicates that an above poverty to medium

range income can be achieved on a nine-acre vegetable farm using con-

ventional techniques. Surplus labor is available during the off-seasons

for possible off-farm part-time employment.

Table 3 also reports the solutions obtained for the organic prac-

tices of the biodynamic/French intensive system. The labor and capital

combinations not appearing for the biodynamic/French intensive system

led to redundant solutions and were thus excluded. No reductions to

net revenue are made because the manual techniques of the system make

capital depreciation almost inexistent.

The economic infeasibility of labor-intensive organic production

in the study area is indicated by the fact that the highest net revenue

maximum is less than $750. The maximum shadow price of an hour of labor

is $0.60. Even when ignoring returns to other inputs, net revenue per

hour of labor averages only $0.22 for all solutions.

Any off-farm employment would be much more remunerative. The earn-

ings of a 2,000 hour man-year of labor paid at the 1976 minimum wage of

$2.20 per hour is $4,400. For the net revenue of the labor-intensive or-

ganic enterprise mix to equal this income level, output price levels

would have to increase almost eightfold. Alternatively, yields would

have to increase five to sixfold.

It is interesting to note that despite the labor-intensive practice

of the organic system, no solution uses more than 56 percent of the

available labor.


The comparative analysis indicates that semi-tropical agricultural

conditions impose a rigorous environment for vegetable crops. Inade-

quacies in the organic control of pests and diseases place severe re-

strictions on crop productivity, and thereby, tend to result in a higher

cost per unit of output. These results contrast to those reported by

Klepper,, and Oelhaf for conditions in temperate zones. An

analysis of yield variance also indicates a higher risk associated with

organic production if risk is evaluated relative to variation around

the mean yield.

The activity analysis indicates that labor-intensive organic vege-

table production is economically infeasible in the study area. The bio-

dynamic/French intensive system would be viable only as a form of hobby

farming where there exist adequate outside sources of income and only

recreational or leisure time is used. The small capital requirements

would preclude the need for large investment in order to initiate pro-

duction. As a hobby, the system can be used to produce low cash cost

organic vegetables which may be difficult to acquire elsewhere.

A final conclusion is that a low to medium range income can be

achieved from eight acres of production in the study area. The warm

climate generates a long crop season which allows an intensified use

of land resources. However, satisfactory income levels of income can

be achieved only if insect and disease pests are kept under control.

Experience in the area has shown that this can be achieved only through

chemical as well as biological control.


Colette, W. Arden. Economic Evaluation of the Agricultural Cooperative
Concept as Proposed by the Southern Development Foundation for the
Manatee County Area in West Central Florida. Gainesville, University
of Florida, 1978.

Florida Crop and Livestock Reporting Service. Vegetable Summary, Florida
Agricultural Statistics.

Fusfeld, A.R. and R.N. Foster, "The Delphi Technique: Survey and Comment",
Business Horizons, 14 (1971).

Jeavons, John. How to Grow More Vegetables. Palo Alto: Ecology Action
of the Midpeninsula, 1974.

Klepper, Robert, "Economic Performance and Energy Intensiveness
on Organic and Conventional Farms in the Corn Belt: A Preliminary
Comparison", AJAE 59 (February 1977).

Oelhaf, Robert C. The Economics of Organic Farming. PhD Dissertations
University of Maryland, 1976.

Rodale, Robert, ed. The Basic Book of Organic Gardening. New York:
Ballantine Books, 1971.

Spencer, A.P. Vegetable Crops in Florida. University of Florida,
Agricultural Experiment Station Bulletin, 58, 1937.

Suit, R.F. "Control of Spreading Decline of Citrus", Florida
Agricultural Experiment Stations. State Project 773, 1956.

Tarjan, A.C. "Attempts at Controlling Citrus Burrowing Nematodes
Nematode-Trapping Fungi", Soil and Crop Society of Florida, 21

Thompson, Ralph B. Florida Statistical Abstract. Gainesville, The
University Presses of Florida, 1978.