The use of gross and net margins in the economic analysis of organic farms

This paper was presented at the UK organic research 2002 of the Colloquium of Organic Researchers (COR). In order to assess the technical and economic efficiency of conventional farm businesses a variety of management techniques have been developed. These include gross and net margin analysis and full cost accounting. This paper reviews their effectiveness in organic farming systems and finds that all of the techniques can be useful in helping to assess the economic efficiency of individual enterprises within an organic farming business, although they have their limitations. Organic systems require the integration of a number of usually complementary enterprises and therefore gross and net margins for particular enterprises taken out of the rotational or whole farm context can be misleading. Consequently it is important that any economic investigation of an organic system also includes whole farm economic analysis

Economics of Organic Top Fruit Production (OF0305)

Of all the organic food sectors in the UK, top fruit is one of the least developed. Despite strong consumer demand and high prices for organic fruit there are, at present, only a handful of commercial organic dessert apple and pear growers. One of the barriers to conventional growers converting to organic production has been the lack of robust data on the economics of organic fruit growing. Therefore the overall aim of this study and benefit to the sector was the collection and assessment of economic data from commercial organic top fruit (dessert apples and pears) farms for three seasons (2001-2003) in order to determine its economic feasibility. Data was collected from fruit growers and processed according to Farm Business Survey techniques and was also analysed on a pence per kg basis, a full cost accounting technique developed for analysing top fruit crops. Over the past few years there has been a rapid growth of both the market for organic top fruit, and an increase in the area of land converted to organic top fruit production, although much of the latter has been of older cider orchards. The market for organic top fruit, with a retail value of £67 million and 7% share, is one of the largest organic product groups in the organic market. In 2003, 1187 hectares of organic top fruit were grown, with an estimated retail value of £6.7 million. UK-produced organic top fruit supplies 10% of the market, with the remainder being imported, compared with 21% in the conventional sector. Although growers had previously been reluctant to convert to organic production due to the high costs of conversion, a small number responded in the late 1990’s to the higher prices achievable, supermarket pressure, and to the increasing level of government subsidies available. The on-farm economics of organic apples and pears was largely determined by the level of yields of fruit for the fresh market, prices and costs of production. The greatest variation in income from individual orchards, varieties, farms, and years was caused by differences in the total yield and the proportion of the yield, known as ‘gradeout’ in the fruit industry, which reached Class I & II (this was typically 50-65% for apples and 50-85% for pears). Prices were relatively stable. Yield variations were caused by the UK climate, with its variable spring and summer weather pattern, the weather also indirectly affected yields through its influence on pest and disease levels, especially in 2002. Organic apple yields were found to be 50-80%, and pears 25-55% of those in conventionally managed orchards. Many of the surveyed orchards contained a large proportion of varieties such as Cox, which are less suitable for organic production systems. Only 20% of the varieties in the survey farms had been specifically planted for organic purposes. Where fruit was processed into juice and bottled on the farm, this proved a very valuable way of maintaining total farm income. Across the various farms costs were fairly similar. The largest proportion of costs, were for marketing (30%) and overhead costs (44% -other labour, machinery, rent, orchard depreciation and general fixed costs). Top fruit growing is very labour intensive and labour accounted for 30% of on-farm costs. Total organic costs per hectare were similar to conventional ones. Average net margins for apples (£455/ha, 5p/kg) gave a 7% margin over costs, and pears (£315/ha, 5p/kg) 5% for the years 2001-2003. A 15% rate would have been regarded as very profitable. At a gross margin level the organic crops were higher than conventional equivalents. With average current prices and costs a breakeven point can be achieved at 7t/ha for apples and 5t/ha for pears. However, the averages fail to show the large range of results that occurred, and that during the survey period nine apple and pear crops (a crop includes all varieties on an individual farm), which represented 43% of the crops grown, made a loss. As costs were fairly similar, the variation in net margin was directly related to the variability in yields. Some farms did notably better than others and this is in part due to their more favourable sites for fruit growing e.g. better soils. It is of some concern that profitability is currently highly dependent on high prices for organic fruit (typically double that of conventional fruit), which may fall as UK supplies increase. A 20% reduction in prices for apples would lead to a halving of net margin and a 45% reduction would lead to all farms making a loss. Although demand for organic dessert fruit continues to grow, the rate of conversion of UK organic dessert top fruit growers to production is still relatively slow. The main constraints continue to be: the high costs of conversion to organic production, estimated to be £6,800/ha for the conversion of an existing orchard over a three-year period, with the cost of establishing a new orchard being greater than £10,000/ha; and the low level and inconsistency of yields and thus profitable returns. To ensure continued investment in new plantings and to allow for management income and profits, average yields need to be increased. It is thought that even with the increased rate of Organic Farming Scheme Payment, of £1860/ha over five years introduced in 2002, will not provide sufficient economic incentive for farmers to convert more land. The crux is that growers are still hampered by low and variable yields due to lack of suitable varieties and the inability to control pests and diseases, which have a major impact on the economics of production. A DEFRA Horticultural LINK project ‘Varieties and Pest and Disease Management for Organic Apple Production, has been addressing some of these issues, although much still remains to be done. The number of growers converting and investment by existing growers in new orchards with more appropriate varieties remains limited. If UK produced organic top fruit, currently meeting 10% of the market, is to rise to comparable levels of self-sufficiency in the conventional sector (21%), then an additional 1,000 hectares ( at current yields) would need to be converted. Since it is the Organic Action Plan objective to see more UK grown organic top fruit, then government and business support for this fledgling sector should continue, and be co-ordinated. It is recommended that support can be provided through further funding for research (e.g. varieties, nutrition, pests and diseases, weeds, market, economics), development and dissemination of existing research

Economics of organic fruit production (OF0151)

This is the final report of Defra project OF0151 Despite a very strong consumer demand for organic fruit, it is the least developed sector of the UK organic industry. The main constraint to growth in supply is the lack of organic fruit growers, especially those on a large enough scale to supply the wholesale, multiple and processing markets. The UK Organic Fruit Focus Group was set up in 1997 as a producer initiative to develop the market and production of UK organic fruit. At the first meeting of the group it was concluded that a) the absence of written technical information on how to grow organic fruit b) the lack of experienced advisors c) the lack of fruit and d) a lack of information on the economics of organic fruit were major barriers to grower confidence and hence expanding production. In June 1998 HDRA began a one year study into the Economics of Organic Fruit Production. The study aims to provide information on: • the size of the organic fruit market and potential for future growth • returns and costs of growing organic top and soft fruit Information for this study has been obtained through contact and visits to marketing organisations, fruit processors and growers. For information on the market major buyers of organic fruit have been contacted to ascertain quantities bought and market trends. In consultation with the ADAS Fruit Team and the Welsh Institute of Rural Studies, data collection forms were devised to enable full costing techniques (all costs allocated to different cost centres) to arrive at net margins and costs of producing organic fruit per hectare (acre), and per kg (lb). In determining the financial returns, average yields over a number of years (5-10) have been used rather than those related to a specific year and where necessary costs were related to those yields. Presently there are a very small number of specialised organic fruit growers, therefore the sample was small: dessert apples (5), culinary apples (3) pear growers (3), strawberry growers (5). It was not possible to find any commercial data from growers of other organic fruit. Case study data from these growers of apples, pears and strawberries were used to provide ‘best possible estimates’ for the physical and financial performance of these organic fruit enterprises. The general conclusions are that despite low (lower than conventional) and sometimes variable yields most organic fruit growers are currently able to generate economic returns. Profitability is related to current high prices (premiums of 60 100% over conventional) for fruit and ability to sell the whole crop to various outlets. Although individual costs differ the overall costs of production are similar between conventional and organic fruit. The profitability of organic fruit appears to be similar or greater than average conventional production. Break even budgets indicate that even if prices fell by approximately 20% then organic fruit production could still be profitable. Price premiums of approximately 40% are still required to enable organic fruit production to be profitable at current yields. Current price premiums offer potential economically profitable returns; however, conventional growers are reluctant to convert. To give growers confidence to take up the challenge of organic fruit production they need encouragement from government and industry in terms of continued aid to assist conversion, more money for research to improve the quantity and quality of economic data available, to improve production techniques, and finally, money to disseminate this information to growers. This report suggests that continued economic monitoring of converting and existing organic fruit farms should be undertaken. Fruit buyers should also encourage UK growers by offering them market incentives. Unless the UK organic fruit growers receive this encouragement, the majority of organic fruit may continue to be imported

The use of case studies in researching the conversion to organic farming systems

This poster reviews the use of case studies in studying farms converting to organic production. Particular reference is made to the 'Conversion to organic field vegetable production' project, which is making use of case studies. Case studies facilitate an in depth analysis of a farm during the conversion to organic production and enable researchers and farmers to gain a greater understanding of the complex changes that take place. Case studies also provide a valuable tool for disseminating the result

The committed organic consumer

Abstract - UK committed organic consumers are reported to be about 23 per cent of consumers and account for 84 per cent of organic sales. This paper compares the committed organic consumer who is also a member of the UK’s national charity for organic growing (HDRA), to committed organic consumers in the wider UK population. Broad parallels were found between these two groups of consumers although there were differences in purchasing drivers as environmental issues were relatively more important to HDRA members than other committed organic consumers. There was also a higher prevalence of vegetarianism and gardening in the HDRA sample. Yet consumer preferences are dynamic and there is perhaps no single, stereotypical, organic consumer

The use of computer modelling to evaluate the agronomic, economic and environmental impacts of N management in contrasting organic rotations

A new computer model (EU-ROTATE_N) has been developed with the aim of improving nitrogen management on all farms across Europe which include fi eld vegetables in their rotations. It brings together aspects of many existing models and contains a number of features to make it applicable to organic producers (e.g. taking account of nitrogen fixation by legume containing leys, nitrogen conservation by winter cover crops and nitrogen supply by manures and composts). A key feature is the model’s ability to simulate economic output and this enables it to be of value to policy makers when considering the impact of new measures to reduce environmental pollution. This paper describes the model and some initial work that has been conducted to evaluate it under UK organic field vegetable systems with contrasting fertility building strategies

Detecting overlapping coding sequences in virus genomes

BACKGROUND: Detecting new coding sequences (CDSs) in viral genomes can be difficult for several reasons. The typically compact genomes often contain a number of overlapping coding and non-coding functional elements, which can result in unusual patterns of codon usage; conservation between related sequences can be difficult to interpret – especially within overlapping genes; and viruses often employ non-canonical translational mechanisms – e.g. frameshifting, stop codon read-through, leaky-scanning and internal ribosome entry sites – which can conceal potentially coding open reading frames (ORFs). RESULTS: In a previous paper we introduced a new statistic – MLOGD (Maximum Likelihood Overlapping Gene Detector) – for detecting and analysing overlapping CDSs. Here we present (a) an improved MLOGD statistic, (b) a greatly extended suite of software using MLOGD, (c) a database of results for 640 virus sequence alignments, and (d) a web-interface to the software and database. Tests show that, from an alignment with just 20 mutations, MLOGD can discriminate non-overlapping CDSs from non-coding ORFs with a typical accuracy of up to 98%, and can detect CDSs overlapping known CDSs with a typical accuracy of 90%. In addition, the software produces a variety of statistics and graphics, useful for analysing an input multiple sequence alignment. CONCLUSION: MLOGD is an easy-to-use tool for virus genome annotation, detecting new CDSs – in particular overlapping or short CDSs – and for analysing overlapping CDSs following frameshift sites. The software, web-server, database and supplementary material are available at

The development of the organic vegetable market and supply in the UK

The vegetable market is one of the largest sectors within the UK organic food market. This market has grown by 30% p.a. over the last 5 years, although it is now slowing down to a rate of 10-15% p.a. The production of UK organic vegetables increased rapidly from 1999 -2001, as growers responded to economic and policy incentives, and now the UK is 57% self sufficient in organic vegetables. Many new UK farmers have converted to organic production, although this process has involved high costs, largely due to having to take land out of production in the conversion period. However, once converted, farmers have in many cases, experienced overall financial returns that have been comparable or higher than conventional returns, although these good returns are highly dependent on high prices for organic vegetables. In comparison with conventional systems costs of organic vegetable production can be high, especially for organic seeds and for increased casual labour required for hand weeding. The resulting larger workforce, often required for organic vegetable production, can pose new management challenges. In the future, market growth and the numbers of farmers converting, will be slower and any market growth will depend on broadening the customer base, expanding different market channels and increasing home production especially at the beginning and the end of the season, thus enabling a substitution of imports

The disposition effect in the absence of taxes

I measure household investment decisions undertaken in a setting that is free from investment taxes. The disposition effect is unequivocally present, but any seasonal impact of tax-loss selling is absent. There is evidence that the disposition effect correlates positively with inferior risk-adjusted investment performance. Although household preferences are unknown, losses cannot be explained by tax benefits

Maintaining the balance between national demand and supply of organic food-example of organic vegetables in the UK.

As the organic market continues to grow in the UK there is strong consumer and policy presssure that organic food is sourced from in-country and not imported. This paper examines the recent trends both in demand for organic vegetables and supply from the growth of converted organic land in the UK. It identifies both drivers and constraints, especially in relation to increasing the number of conversions of farms and the productivity of the land and concludes that a combination of favourable economic, social and institutional factors are all necessary in order to create a favourable environment for national supply to balanced with deman