Summary of Counter-Arguments:
| - The overall cost to society of producing food organically is actually lower than the cost of conventional production. The price of conventional food is artificially lowered by production-oriented subsidies. Negative externalities caused by conventional farming are not accounted for in the price of food. Better policies could address this problem. - For northern consumers, the organic premium is declining due to increasing economies of scale in processing and commercialization of organic products as the sector develops. Nevertheless, it is likely that a premium will remain due to additional certification costs, higher consumer demand, and more demanding production standards. - In developing countries, uncertified organic food is generally cheaper to produce and sold at the same price as conventional food. |
Details of Counter-Arguments:
Conventional agriculture carries many hidden costs, such as the external environmental and social costs that such production systems create. These external costs are not included in the cost of production and in the final price because they remain externalities to the farm production system. One example of such an externality is the need for, and cost of, water treatment and environmental protection measures due to pesticide use in conventional farming; pesticide manufacturers pass on the costs of cleaning up pesticides to farmers, who pass it on to water companies, who in turn pass it on to consumers via water bills. In effect the polluter gets a hidden subsidy from anyone who pays a water bill, while the non-polluter – the organic farmer – receives no such subsidy. The yearly total cost of removing pesticides from the water supply in the UK is £120 million. Another example is the BSE (Bovine spongiform encephalopathy) epidemic, which originated from a conventional practice aimed at reducing production costs by feeding cows on rations that included meat and bone meal (that was contaminated), but resulted in a huge collective cost. On the contrary, prices of organic foods include not only the cost of the food production itself, but also a range of other factors that are not captured in the price of conventional food, such as:
- Environmental enhancement and protection (and avoidance of future expenses to mitigate pollution);
- Higher standards for animal welfare;
- Avoidance of health risks to farmers due to inappropriate handling of pesticides and to consumers due to a healthier food and water supply (and avoidance of future medical expenses); and
- Rural development by generating additional farm employment and assuring a fair and sufficient income to producers.
A study carried out by Professor Jules Pretty calculated that the total hidden or “external” cost to the environment and to human health of organic farming was much lower than for conventional agriculture, probably no more than a third the cost, and that organic farming also has higher positive externalities [1]. The World Resources Institute, an environmental policy think tank, also reported that after accounting for all the external costs of soil loss, water contamination, and environmental degradation caused by conventional farming practices, the average farm shows a net loss instead of a net profit, which suggests that the total cost of food production to the society is much higher than current conventional food prices. If the hidden costs were included in the shelf price, consumers would be paying the real costs of food and organic food would be cheaper than conventional food because these additional costs are much lower.
Certified organic food is generally sold at a premium price compared to conventional food, although in some cases, certified products can be cheaper. This price difference reflects both higher production costs due to alternative production practices (e.g., higher animal welfare standards, restricted use of chemicals, and soil fertility enhancement), and a higher demand from consumers for organic products. In some cases, the price difference is the result of the specific willingness of consumers to pay higher prices and does not reflect a higher cost of production. This can be the case for instance in community-supported agriculture schemes where consumers agree with the farmer on the price of his or her products beforehand, keeping in mind the objective of establishing a local fair trade system and of encouraging the maintenance of agricultural families in rural areas.
For non-certified organic food in developing countries, the situation is very different. There are many agricultural systems that fully meet the requirements of organic agriculture, but are not certified organic. The produce of these systems is usually consumed by the farming household or sold locally (e.g., in urban and village markets) at the same price as their conventional counterparts. Although the uncertified produce does not benefit from price premiums, some cases have been documented where non-certified Organic Agriculture increases productivity of the total farm agro-ecosystem and reduces the amount of purchased external inputs, which means that the production cost of these organic products is actually lower than that of conventional products.
Most importantly, the true cost of a food product is not simply the price for which it is sold. It is widely acknowledged that the price of non-organic food is often influenced by subsidies and other public support schemes. National or regional programs and subsidies are mostly geared towards large-scale, chemically intensive agriculture and artificially lower the price of conventional products. As an example, the European Union pays €40 billion a year towards agricultural subsidies under the Common Agricultural Policy (CAP). Taxes-payers’ money is used to subsidy the production of farmers who mainly use non-organic farming practices. The taxpayer gains little in terms of environmental or health benefits. If this support were to be diverted away from production-linked aid towards support that encourages all farmers to adopt more environmentally friendly forms of farming, such as organic, the price of organic food would be comparable to that of conventional products. Unfortunately, the current allocation for rural development program, which embodies some of these objectives, is just five percent of the total CAP budget. Organic agriculture is still facing unfair competition in the marketplace due to the competition distorting effect of current subsidy schemes.
The organic supply chain currently suffers from costs linked to handling small quantities for niche markets. The greater diversity of enterprises in organic production means that economies of scale are less easily achieved. Post-harvest handling of relatively small quantities of organic foods results in higher costs, especially given the mandatory segregation of organic and conventional produce, particularly for processing and transportation. Marketing and the distribution chain for organic products are relatively inefficient and costs are higher because of the relatively small volume. As demand for organic food and products increases and the sector develops, technological innovations and economies of scale are likely to reduce costs of production, processing, distribution, and marketing for organic produce. This phenomenon is already perceived by consumers in the main organic markets such as Germany and the US, where some organic products are now being sold through usual marketing channels.
In conclusion, the price of organic food is not too high – rather, it is the price of conventional food that is too low. Consumers are in fact paying for non-organic food three times over, through the sticker price, taxation (which mainly subsidizes non-organic farming), and payments that remedy damage that conventional farming and food production has inflicted on the environment and human health. If the production, distribution, and trade systems accounted for the real environmental and social costs, consumers’ incentive to buy organic products would be triggered, because they would actually be less expensive than the conventional products.
[1] The Real Cost of Modern Farming, Jules Pretty, available at http://www.resurgence.org/resurgence/issues/pretty205.htm