The economic implications of organic farming

Abstract

Many farmers are turning to organic or “low input” farming as a strategy for economic survival. Several comparisons of actual grain farms in the central and northern states showed that organic farming equals or exceeds conventional farming in economic performance. These findings are supported by studies that used yield data from research plots as inputs to economic models. However, models that relied more heavily on hypothetical data showed an economic disadvantage for organic farming. This may have been a result of the failure of the hypothetical models to incorporate valid assumptions on conservation and efficient utilization of water, nutrients, fuel, labor, and capital. Established organic farmers are less vulnerable to natural and economic risks than conventional farmers because their systems are more diversified. They also are less able, however, to take advantage of income tax deductions. Future trends in commodity prices, input prices, pollution regulation, and research can be expected to have mixed effects on conventional and organic farmers, but the net impact will probably favor organic farmers. On a macroeconomic (i.e. national) scale, conversion to organic farming would have many benefits. It would reduce federal costs for supporting commodity prices, reduce depletion of fossil fuels, reduce the social costs associated with erosion, improve fish and wildlife habitats, and insure the productivity of the land for future generations. However, widespread conversion to organic farming would have an undesirable impact on the balance of trade. Future research on the economics of organic farming at the farm or microeconomics level should be directed at horticultural crops, southern latitudes, marketing, and the process of conversion from conventional to organic farming. Future macroeconomic research should quantify the social benefits described above, enabling decision makers to compare organic farming with other policy options.