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Summary of "Economics of organic farming in Canada".

Extracted from: Henning, J. 1994.

In: N.H. Lampking and S. Padel (eds.). The Economics of Organic Farming: an international perspective. CAB International. Wallingford, Oxon. UK. pp. 143-160.

3.0 Producer and Consumer Interest in Organic

It is clear from polls that producers perceive the "sustainability" issue is important. According to the recent Angus Reid (1990) poll 53% of Canadian farmers had made some changes during the previous year due to concerns for the environment. The most important changes involved reductions in the use of crop chemicals (27%) and efforts to reduce soil degradation (23%). Yet, these data are not directly indicative of the desire to convert to organic.

Farmers are converting to organic methods for a variety of reasons, but the most important have to do with a general unease with the health and environmental impacts of conventional practice, increasing disease and pest problems, and the expectation that organic methods might be more profitable (Henning, et al., 1992, MacRae, 1990). In a recent Canadian survey, Weymes (1990) asked a sample of 110 organic farmers to indentify the most important reason they adopted organic practice. The following were identified as the most important concerns or motives:

33% - use of chemicals

29% - the environment

27% - own health or safety

9% - profitability

Consumers are concerned about chemical contaminants in food and are willing to pay more to avoid them (Baseline Research, 1988; Hanisch, 1990; Weersink et al, 1990). The survey done by Baseline Research for Agriculture Canada (1988) found that 88% of those polled were either "disturbed" by or entirely opposed to the use of pesticides in food production. Weersink et al. (1990) reported that 80% of the consumers in their survey expressed concern about chemical contaminants and additives. Combined with this is a decreasing trust in many public institutions such as licensing and inspection services provided by government, and the universities. Consumers are losing faith in the system to deliver safe and nutritious food (National Report Steering Committee, 1991) which has given rise to the "fear of food" phenomenon (Warley, 1990).

In spite of the reputed positive attitude towards organic, this has not translated into a widespread increase in demand for organic products, and on the supply side, producers are approaching the transition to organic practices with some justifiable caution.

4.0 Developments in the Organic Market: Marketing Issues

The organic sector remains minor (1%) as in most countries of Europe, and the United States. Although those participating in the organic industry are optimistic about the future, the progress of the sector has not lived up to past expectations.

Although retail sales growth has been encouraging for small retail outlets, organic foods do not appear to have been a success for many supermarkets (Hancock, 1991; Cole, 1991). Problems commonly cited include: requires more handling, packaging not as good, short shelf life, and inferior cosmetic appearance.

The organic sector has had trouble penetrating processed markets where it is used as an ingredient, compared to fresh and slightly processed products (Weymes, 1990). This offers companies interested in using the organic image in their marketing a relatively inexpensive vehicle. At least in the short run, this could generate more demand for raw organic products, yet there is a danger that organic products will be undermined.

The market for organic products is still immature, with a number of problems that has produced a market that is far from operating efficiently. Problems have been identified in a number of studies in many countries, and were generally reflected in the results we obtained in survey work on the Quebec market. Hanisch (1990) conducted a survey of 11 organic wholesalers and retailers in Montreal, and Henning et al. (1990) carried out a survey of 80 certified organic producers in Quebec.

Wholesalers and retailers consider it to be a seller's market yet supply problems are common. Problems include insufficient variety, certification problems, seasonal fluctuations, and lack of strength of the distribution system to provide adaquate variety leaving the retailer with little choice. However, they expect market sales to grow by 34% per year. Respondents noted that consumers are confused, particularly between terms such as "natural" and "organic", which was also observed in a recent study by Weymes, (1990).

We asked farmers if they had experienced problems in marketing their products and to give examples. They expressed a variety of experiences, with the majority expressing some kind of marketing problem. One of the strongest themes expressed by respondents was their concern for the low level of consumer understanding of organic products and the certification process.

Many producers complained that they were not able to get a price premium for their organic products or that the premia were unreliable. On average, farmers reported receiving a 30% premium for their product, but also reported that prices and premiums are highly unstable. This accords with other surveys which seem to indicate that there is still resistance to premiums above 10%, although the Baseline (1988) study found that of those consumers who make at least occasional purchases of organic, 53% were willing to pay a 25% price premium.

Producers are very aware of the fact that there is a large and growing consumer demand, but the marketing system is poorly organized. There is little cooperation among producers, or between producers and the distribution system, and there has been a lack of continuity of firms at the wholesale level. The result has been a chronic pattern of market disequilibrium.

A major issue identified in our survey, as well as others, is the lack of common certification standards, labelling and a legal definition of organic. As it stands, producers would argue that they lack an exclusive property right that is fundamental to the survival of their industry. There is theoretical support for this position insofar as the objective of such a system is to improve the flow of information in the market. As Carlton and Perloff (1989) point out, where there are informational asymmetries or limitations on information, markets may cease to exist, or be inefficient when they do.

5.0 Economic Comparisons Between Conventional and Organic

Studies vary on the version of organic agriculture practiced, and in some cases carefully paired comparisons have not been used. Results are likely to be affected by the context of the comparison. For example, the incidence of pests or diseases is influenced by farming practices on surrounding sites; input and output prices will be a function of local conditions. Finally, organic practice involves important spatial and temporal dimensions that must be taken into account. Unless the whole system is part of the analysis, some or all of the important complimentarities between enterprises can be lost.

Even so, net returns are comparable due to lower variable input costs. Considering the relative poverty of the research effort devoted to organic practices, this result is most encouraging.

Copyright 1994 Ecological Agriculture Projects. Reprinted with permission. All rights reserved.

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