The cost factor
Varun
Gupta writes about the bottlenecks that make organic food more expensive
than intensively farmed food
Organic
food products are generally known to be quite expensive compared to
conventional products. Many believe that the organic business is very
profitable and the sellers of organic produce enjoy very good margins.
They argue that organic inputs in agriculture are far cheaper than conventional
inputs so the cost of agricultural production for organics should actually
be lower. While it is true that organic inputs are cheaper, there are
many other factors that need to be considered that lead to significantly
higher costs. The first and the most obvious cost is the cost of organic
certification. Everybody in the supply chain of an organic food product
has to be a certified organic, not just the farmer but also the trader,
the warehouse and the processing units that contribute to taking organic
produce to the consumer. The cost of certifying a farm depends on the
size of the farm. Usually, a group of farmers get themselves certified
under one banner. Even for a relatively large farm project, the cost
of certification can be anywhere from Rs 200–500 per acre of land.
Thus a project of about 1,000 acres could end up spending Rs 2–5
lakhs. Smaller projects may have to cough up much more per acre. The
cost of certification goes up further if the certification needs to
extend to cover more than one standard (there are different standards
for India, EU, US, Japan and so on). Further, the cost of certification
for the trader, the warehouses and processing units, all add to the
costs. These certification charges have to be paid every year as the
certification is valid for only one year and needs to be renewed annually.
Second, the farms have to undergo a conversion period of up to three
years before they are certified organic. During the conversion period,
the farmers continue to bear the charges of the certifying body but
have to sell there produce in the conventional market. Third, the farmers
face lower yields when they switch from conventional to organic farming.
It has been demonstrated by some that it is possible to get very good
yields in organic farming, sometimes even better than from conventional
farming. However, the fact remains that it often takes years of dedicated
effort before the yields improve. The soil takes time to recover after
the switch is made and the farmer goes through a learning curve before
he masters the new techniques.
Fourth,
an organic farmer faces increased risks with the vagaries of
nature. Managing pests and disease without using chemicals can be quite
daunting. The risk of losing the entire crop is higher in organic farming
than in conventional farming. All the above reasons justify the farmers
charging a premium for their produce. The organic premium at the farm-gate
may range from 15 per cent to more than 50 per cent above conventional
prices, depending on the supply-demand situation of the product. The
organic premium is meant to cover the farmer for all the extra costs,
labour, losses and risks he has to bear for going organic and also give
him a reasonable profit over and above what he would earn in the conventional
market. Once the produce moves out of the farmgate and before the final
product reaches the consumer, the produce needs to be transported, stored
and processed. Often, the certified organic traders/marketers have to
procure organic produce from distant certified projects that lead to
significantly higher transport costs. Moreover, the quantity to be transported
may be uneconomically small; this is especially true for those who sell
organic products in the domestic market. Low volumes in organic also
means that processing organic products is expensive. Most organic products
sold in the domestic market today are processed at cottage industry
level, often with hand, leading to increased wastage and higher cost
per unit. Even if a processing unit agrees to process organic, apart
from the cost of certifying the unit, there are additional costs associated
with organic processing because organic products need to be processed
and stored separate from conventional products. In order to process
a small batch of organic, a manufacturing line has to be shut down and
cleaned of the conventional products processed earlier. Precaution has
to be taken during storage to avoid mixing organic with conventional.
All this adds to costs. Storing organic food commodities is another
challenge. In order to make organic food available to the consumer throughout
the year, the marketer has to store the pulses.
