30 November 2001


There is no guarantee

that organic conversion

will be rewarded with

success because

organic premiums

depend on the product

being in short supply

A FEW weeks ago I participated in a debate arranged by land agents Bidwells in Tattersalls sale ring at Newmarket. I felt I should have trotted round before speaking to the 200 strong audience in the buyers seats. And it was interesting to speculate which oil sheiks might have sat in those seats before we arrived. Come to that, which famous stallions now at expensive stud might have trodden the ring in which we speakers sat?

The debate was essentially intended to compare the long-term viability of organic and conventional farming systems. Leading on behalf of organic production was Peter Melchett, seconded by EU consultant Peter Fane, while Nuffield scholar Guy Smith and I stood up for conventional farming. For the record, we claimed that integrated farming was the new conventional. We considered the fact that LEAF now has 15% of UK farmland in membership and claims to have influenced the systems of at least a further 70% proved our point.

Lord Melchett, who is part way through converting his 364ha (900 acre) north Norfolk farm to organic and is a policy adviser to the Soil Association, took it all very seriously.

We, on the other hand, felt that to make it a more interesting event, a little humour was called for and indulged in a few jibes, not all of which were entirely relevant to the subject in hand. It was all good stuff and I am pleased to say our side won decisively.

But the decision whether to convert to organic is a serious business. And, as I tried to point out in the debate, there is no guarantee it will be rewarded with financial success. For if you take out the emotion, as well as the commitment it takes to farm in that difficult and old-fashioned way, the organic farmer, like any other, still has to make a profit. Yes, there are grants to help during conversion, although they are not as generous as in some other EU countries. But after conversion the organic producer gets no more government aid than conventional farmers and can only recover his higher unit costs from the market.

And that is where they can come unstuck. Organic premiums have been substantial, but they are now at risk. Take milk, for instance. A few years ago, when the ex-farm price for conventional milk was low as 16p/litre, many dairy producers decided to convert to organic on the basis of promises of nearly 30p/litre. But now many of them are in full production only about half can find markets at that price. The rest have to accept nearer 20p – the same as conventional farmers are getting.

I have not studied the accounts of such unfortunates, but I imagine they must be losing serious money. On the other hand, conventional producers can probably now show a small margin at 20p.

The problem is so severe that, in an effort to preserve the profits of organic milk producers who are receiving a premium, the Soil Association is advising those contemplating conversion not to.

And milk is only the first commodity to be so affected. The great rush of farmers seeking to convert over the past few years, encouraged by increased grant aid and fed up with declining margins from conventional operations, must mean that some fruit and vegetables will soon face similar risks. The Soil Association has also warned that organic beef is in danger of over-production.

With 70% to 80% of organic food consumed in this country being imported, logic suggests this should not happen. But that thinking fails to recognise retailers readiness to import organic produce from abroad, despite often lower organic standards, as long as it is cheaper. And because other countries, in Europe and elsewhere, reached over-capacity before the UK, and/or because some of them receive ongoing grants, they are willing and able to undercut UK production costs.

Moreover, when Tesco announced recently that it wanted to dramatically increase its turnover of UK-grown organic food it added that this would enable it to cut prices to consumers. It seems unlikely that Tesco will be prepared to trim its margins, so the assumption must be made that it will seek to cut the prices it pays to growers. All of which implies another profit squeeze for the organic producer.

The fact is organic farming is a diversification from conventional. As such it is producing for a niche market, albeit a substantial one, and subject to the laws of supply and demand. Like all niches it can easily be overdone. The volume of imports has encouraged organic advocates in the past to persuade as many UK farmers as possible to join their club. Many have responded. But, as they are now finding, demand for organic goods is finite and perhaps a lot smaller than they imagined.

If I was an organic farmer I would not be urging my neighbours to copy me. Rather, I would be warning them to stay out of it. For it is only by maintaining a shortage that the premiums necessary for organic farming will continue to be paid.

The decision

whether to convert to organic is a serious business. And, as I tried to point out in the debate, there is no guarantee it will be rewarded with financial success.

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