Impacts of organic farming on the rural economy RE0117

Organic farming has achieved a high profile in recent years. Although the 1,636 registered organic farmers in England account for less than 3% of the farm population, the market for organic produce is estimated to be worth some £1.2 billion. It has been argued that the growth in demand and supply of organic produce offers environmental benefits, health benefits and also benefits to the rural economy through stimulating employment and providing a basis for rural development. Against this background, the research on which this report is based sought to address the question of whether organic farming provides an additional benefit to the rural economy over and above that of conventional agriculture. The main objectives were to: 1. Review current state of knowledge of wider socio-economic impacts of organic farming through a review of literature and input of stakeholders via a panel of experts seminar. 2. Examine differences in the socio-economic footprint between organic and conventional farming in terms of pattern of sales and input purchases, quantity and ‘quality’ of labour inputs, integration with local socio-economic networks, contribution to tourism and rural development. 3. Examine differences in socio-economic footprint between different types of organic and conventional farms (following the approach outlined under Objective 2). 4. Develop policy implications in consultation with DEFRA and other stakeholders. In order to explore these issues a postal survey was conducted in 2004 of 655 organic and non-organic farmers in England and this was supplemented by in-depth face-to-face interviews with 22 farmers and stakeholders in three study areas in South West, Eastern and Northern England. For the purposes of the project, the definition of organic farming was based on certified compliance although it is recognised that organic farming can be much more than this. Additionally, by defining organic farming, remaining farms have been classified as non-organic although in reality non-organic farms exist on a spectrum of farming systems, some of which are ‘near-organic’. In terms of identifying and understanding benefits to the economy, the concept of a ‘socio-economic footprint’ has been developed to illustrate and measure the impact of different types of farm in terms of their economic activities, accessing of grant aid, connectedness to and participation in the local community. This is a much broader perspective than a traditional economic analysis and, as a consequence, the results of the research may be more complex. Impacts and characteristics Respondents to the survey spent a total of £65m in purchases (excluding labour) for their businesses and generated £90.5m in sales. At an aggregate level, organic farms spent less on purchases and generated a lower volume of sales. The organic sample was slightly smaller (302 compared to 353 non-organic farms) and when the value of sales is standardised and expressed on a per hectare basis, organic farms out-perform non-organic farms (generating average sales of £2,837 per ha compared to £1,953 per ha for non-organic farms). That said, it is increasingly recognised that in terms of economic impacts and rural development potential it is not just aggregate values that are important but also how closely businesses are linked to their local economies, so that the money spent is retained in the local economy and supports other businesses and individuals. This can be thought of as ‘economic connectivity’ and was explored through an analysis of the spatial pattern of sales and purchasing behaviour. In terms of both sales and purchases organic farms are not significantly more connected to the local economy. For example, on organic farms 29% of the total value of purchases and 19% of sales are made within ten miles of the farm compared to 27% and 27% respectively for non-organic farms. The definition of ‘local’ is clearly open to interpretation and if it is widened to encompass the county within which a farm business is located then a total of 72% of purchases and 57% of sales on organic farms were made ‘locally’ compared to 65% and 56% for non-organic farms. On the basis of this measure of economic impact and connectivity there is little difference between organic and non-organic farms. The results of this research largely confirm the results of previous studies in identifying a significant employment dividend associated with organic production. Organic farms accounted for 46% of the sample but 57% of all people employed in the sample. Standardising labour in terms of Full Time Equivalents (FTES) confirmed that, despite being smaller on average, organic farms employ more FTEs per hectare and per farm than non-organic farms. Moreover, they employ more non-family FTEs compared to their non-organic counterparts and it is only on organic farms that non-family FTEs exceeded family labour inputs. However, while employment is higher on organic farms a much greater proportion is accounted for by casual staff (50% compared to 33% for non-organic farms). This may be a reflection of the farm type structure of the two sub-samples as horticultural businesses account for a greater proportion of the organic sample (see the short and full reports for full details). Casual employment may offer flexibility to multiple job holding rural workers but by definition does not offer stability and may be associated with lower levels of pay. While the economic impacts and local economic connectivity of the two farming systems are broadly similar, the operators of the businesses and the way in which individual businesses are configured are significantly different. The people who operate organic farms are typically younger and more highly educated than their non-organic counterparts. On average, organic farmers are 6 years younger than their non-organic counterparts and 51% have a higher education qualification compared to 30% of non-organic farmers. In addition, a significant proportion have entered agriculture as an entirely new ‘career’ and did not come from a farming family. Many had never farmed in any other way but organically and had no intention of leaving organic farming in the foreseeable future. It is reasonable to assume that this distinctive group of organic farmers bring with them different skills and aptitudes and possibly also a different attitude to operating a farm business. They are more likely to run diversified enterprises than their non-organic counterparts and those enterprises are much more likely to be orientated away from providing services to the agricultural industry and instead are focused on processing and/or retailing. Further analysis revealed that farms operating direct sales enterprises have the most distinctive impact in terms of their contribution to rural development. Compared to other organic farmers they were younger, more highly educated and more likely to have diversified. All farms with direct sales recorded a higher value of sales per ha than farms where direct sales were absent but this was even more marked for organic farms. On average organic farms with direct sales generated sales of £4,983/ha compared to £3,249/ha for non-organic farms with direct sales, whilst all farms without direct sales generated sales of £1,654/ha. These farms also support a larger number of jobs as well as providing a more diverse range of employment opportunities. In addition to the readily quantifiable impacts noted above, the combination of organic production, in particular, with direct sales is associated with less easily quantifiable impacts that nevertheless represent a bonus to rural development and suggest the possibility of having a re-generative role in the community. Key here is the direct relationship with the consumer which often transforms the operation of the farm business in that it requires there to be trust between farmers and their customers. As well as connecting farmers and consumers in a more direct manner, direct sales are frequently associated with improved connections and collaboration between farmers as consumer demand almost always requires farms to act collectively. These networks of trust can help build broader feelings of reciprocity and solidarity. Consumers can feel that they are supporting and building a form of food production that they find to be superior from an environmental and or health perspective, or just convenient, or a combination of all of these. As a result, they can enter a new set of relationships with those who produce their food. In turn the producers, who are often already acutely aware of their dependency on consumers, can negotiate that relationship face-to-face with their customers. Organic status again acts as a bridge, a social shorthand, that helps customers and producers share a feeling of solidarity before entering into a relationship of relative interdependence. These feelings can be established outside the framework of organic agriculture, but the costs in terms of time and effort will be more considerable. Fellow feeling and mutual dependence strengthen the sense of community. Although the selling of food directly to the customer is not a complete answer to community development, it can make an important contribution. Implications The beneficial impacts identified in this research were associated with organic farms which operated a very different business model. Therefore it is recommended that a business reconfiguration package is developed to help farmers reconfigure their businesses to supply customers directly. In addition, given the shortage of external private capital in farming it is recommended that possibility of private co-financing to lever in funds from outside the farm sector is explored. A venture grant scheme could be facilitated with Defra acting as the broker introducing those willing to share both risk and reward with farmers wanting to reconfigure their businesses. Action should also be taken to recruit dynamic and pioneering farmers into a network of demonstration farms where the emphasis is on understanding the process of changing and sustaining the farm business rather than just the farm system. Finally, it is recommended that the concept of developing organic hubs is explored through an experimental pilot project. An organic hub would be a single site where organic infrastructure, including advice workers, is located. The hub could provide an organically certified small-scale abattoir, cold-storage unit and warehouse/pack-house facilities. The principle would be to establish a point where infrastructure was available to facilitate the building up of networks of smaller producers selling directly to the customer

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