Comparative analysis of organic and non-organic farming systems: A critical assessment of farm profitability

Food and Agriculture Organization of the United Nations
Rome, June 2009

Executive Summary
The last decades have seen a proliferation of economic studies that have compared the economic performance of organic and non-organic farming systems. Several criticisms were formulated questioning the validity of such comparisons, partly because of the inherent difference between the two systems (in terms of complexity, diversity and objectives other than yield maximalisation), and partly due to the difficulty in excluding ’non-system’ determined factors that also have an influence on profitability. Furthermore, the adequate selection of a reference
group for comparisons has proved to be fundamental for relative profitability: which organic farms are put on the profit measuring scale by researchers with which conventional farms determine the outcome.

The list of profitability studies compiled in this paper involve more than 50 different cases, mostly from U.S.A, where several universities started long-term experimental field studies in the eighties and from European countries. Just over a dozen shorter-term studies have been collected from developing countries on high-value export crops. Most studies have used a case study approach selecting between five up to hundreds of farms for the collection of data on farm economics.

The following main conclusions are evidenced by analysing the studies listed in the Appendix:

• The overwhelming majority of cases show that organic farms are more economically profitable, despite of frequent yield decrease;
• Organic crop yields are higher in cases of bio-physical stress (e.g. drought);
• The higher outcomes generated by organic agriculture are due to premium prices and predominantly lower production costs;
• The different value and accountability given to labour costs, including both hired and family labour, differs through countries, thus yielding to opposite results;
• The major difference in the profitability of the two systems is very often determined by the different management skills of the farmers thus, accounting for these seem to be fundamental for correct interpretations of results;
• There is a wide range of discrepencies among studies related to what variable and fixed costs entail and without agreeing upon which input costs shall be included under which circumstances in economic studies, no clear-cut conclusion on profitability can be drawn when analysing available literature.

Nevertheless, the analysis of the compiled studies demonstrates that, in the majority of cases, organic systems are more profitable than non-organic systems. There are wide variations among yields and production costs, but either higher market price and premiums, or lower production costs, or the combination of these two generally result in higher relative profit in organic agriculture in developed countries. The same conclusion can be drawn from studies in developing countries but there, higher yields combined with high premiums are the underlying cause for higher relative profitability.

Finally, this paper draws attention to the fact that existing economic comparisons are heavily biased becaused they do not internalize externalities neither account for the the fact that nonorganic farms receive higher governmental support and better research and extension services. This paper argues that the profitability of a farming system must balance economic costs against environmental, social and health costs, as these costs have delayed impacts and indirect implications on farm economics.

Read the full FAO paper


Posted March 2011