This research report begins by analysing the economic consequences of switching to local production in combination with ecological methods. This entails not only focus on either organic agriculture or localised production but on a combination of these two requirements. The outcomes depend on which actor one analyses: the farmer, the consumer, the local community or municipality or society at large

Sumelius, John

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Organic Eprints

E K O L O G I S K T   L A N T B R U K   N R   4 3   •  O C T O B E R   2 0 0 5POSSIBILITIES FORAND ECONOMICCONSEQUENCES OFSWITCHING TO LOCALECOLOGICAL RECYCLINGAGRICULTUREJohn Sumelius (ed.)Centrum för uthålligt lantbrukBaltic Ecological Recycling Agriculture and Society (BERAS) Nr. 3ISSN 1102-6758ISRN SLU-EKBL-EL--29--SEISBN: 91-576-6857-4Antal sidor: 68Ämnesord/Key words: Organic farming, Organic food, Local food, Sustainability,Resource management, Food systems, Rural development, Costs, Farm managementEkologiskt lantbruk – 43Possibilities for and Economic Consequences of Switching to Local EcologicalRecycling AgricultureCentrum för uthålligt lantbrukSLUBox 7047750 07 UppsalaEcological Agriculture – 43Possibilities for and Economic Consequences of Switching to Local EcologicalRecycling AgricultureCentre for Sustainable AgricultureSwedish University of Agricultural SciencesS-750 07 UppsalaAuthors are responsible for the factual contents of the report.5P A R T  IAs a concept, ecological recycling agriculture is close to organic farming.Farmers, consumers and society at large are increasingly supportingthis type of agriculture for a number of reasons. For all three groups themost notable reason for supporting localised organic production systemsis likely to be the reduction of nitrogen and phosphorus loads into thewaterways and into the Baltic Sea. The environmental effects of recyclingagriculture have been described in another BERAS report and need notbe repeated here (Granstedt, Seuri and Thomsson, 2004).  This researchreport takes another perspective. It begins by analysing the economicconsequences of switching to local production in combination withecological methods. This entails not only focus on either organicagriculture or localised production but on a combination of these tworequirements. The outcomes depend on which actor one analyses: thefarmer, the consumer, the local community or municipality or societyat large. Furthermore, the reduction of the aggregated emissions to theBaltic Sea is a matter which needs to be addressed on an internationallevel. The aim is here to cover aspects of all these levels, although wedo not try to solve all problems. The aim is rather to illustrate the pano-rama of views and possibilities based in part on case studies of farms,households and communities.The report starts out at the production level with an analysis byReeder (in this volume) of the costs of production of organic milk on adairy farm in the community of Järna in Sweden. From the farmer’spoint of view, the production of organic milk is connected with highercosts per unit of milk produced. The environmentally friendly mode ofproduction is likely to lead to lower environmental costs to society atlarge through lower amounts of nutrient emissions. Yet, on the farmlevel, the requirements of self-sufficiency in feed, local inputs andrecycling may lead to fewer attractive alternatives and therefore tohigher costs. While it may not be advisable to draw far-reachingconclusions from one in-depth study, Reeder’s results are quite clear.Total production costs are in the range of 0.055-0.066 Euro/kg milk (0.50-0.60 SEK/kg milk) higher than for conventional production.  Particularlythe fixed costs seem to be much higher for this farm. The higherproduction costs and the lower milk yield are offset by a 0.055 Euro/kgmilk (0.50 SEK/kg milk) higher milk price and a livestock premium of187 Euro (SEK 1700) per cow.A production cost survey can give an idea of the costs incurred byindividual farmers. However, it does not tell much about the possibilitiesof changes in the production mix or about the effects of institutionalconstraints. These issues can be investigated using linear programmingmodels. Bäckman and Krumalová (in this volume) modelled threeorganic farms in the municipality of Juva in south-eastern Finland. TheINTRODUCTIONJohn SumeliusDepartment of Economics andManagement, Faculty ofAgriculture and Forestry,University of Helsinki˘˚6        E K O L O G I S K T   L A N T B R U K   N R   4 3   •   O C T O B E R   2 0 0 5P A R T  Imain production lines on these farms are dairy, forage and beefproduction respectively. The results of the scenarios show the ecologicalproduction options that are available to each farmer in order to improvegross margins. The analyses include the opportunity cost (incomes lost)owing to institutional and environmental constraints, for instance therequirement of self-sufficiency in feed. Bäckman and Krumalová alsopoint out that trade between farmers is an important feature of localmarkets and generally improves the economy of the farmers. The articleraises some important questions concerning the effects of the CAP re-form, which will come into effect 2006.From society’s point of view the effects of nutrient emissions leadto eutrophication of waterways and the Baltic Sea and are therefore asocial cost (Larsson, in this volume). The argument in favour of rapidaction is that prevention is less expensive than cleaning up afterenvironmental degradation has already taken place. Larsson cites twostudies by Gren (1997, 2001) according to which the cost of a 50%reduction of total nitrogen emissions to the Baltic Sea is estimated to be1.32 billion Euros (SEK 12 billion) per year if the most efficient solutionsare applied. This estimate requires countries to cooperate since cleaningcosts may be less expensive in one country than in another. CitingSöderqvist, Larsson reports that the combined willingness-to-pay of thepopulation around the Baltic Sea has been estimated to be 3.4 billionEuros (SEK 31 billion) per year. Larsson proposes some economic andadministrative instruments for achieving sustainable agriculture, andhe suggests some dietary options for consumers.From the local community’s point of view, an increase in demandfor local foodstuffs is likely to have a positive effect on the regionaleconomy in terms of increased employment and increased tax returns.Decreased transports may lead to a decrease in energy consumption.Vihma (2004) has estimated these effects the so-called ReGae input–output model. This model was used to estimate the effects of a 5%exogenous increase in demand for local foodstuffs in the province ofsouthern Savolax, a region in south-eastern Finland with a ratherimportant food sector. The increased demand would lead to a 0.34%increase in employment in the regional economy of at least 200 per-sons. The increase would be the strongest in the food sector with anincrease of 7.45% in employment. Output would grow by 0.31 % andimports would decrease by 0.52%.The consumers buy partly conventional and partly organic food.Thomsson (in this volume) followed the food expenditures of 15environmentally conscious households in Järna, Sweden. He thencompared these food expenditures with the average expenditures forSwedish households. While the environmentally conscious householdhad substantially higher food expenditures, the variation withinhouseholds was large. Households consuming large amounts of ani-mal products usually had higher expenditure than those consuminglarge amounts of plant products.˘˚7P A R T  ICiting Statistics Finland, Hannula (in this volume, results arepreliminary) notes that the average Finnish household spends 1580Euro/person/year on food. She studied ten household in the municipal-ity of Juva in south-eastern Finland and found per capita expendituresin the same range as the Finnish average. However, individual differe-nces between households were large.Taken as a whole, the publication sheds additional light on thepossibilities, constraints and strengths of local organic agriculture.ReferencesReeder, H. Production cost of organic milk. A case study of a dairy farmin Sweden.  In this volume.Bäckman, S. and Krumalová, V. Local food options- a linear pro-gramming perspective on three organic farms in South Savolax,Finland. In this volume.Gren, I-M. 1997. Cost-effective Nutrient Reduction to the Baltic Sea.Environmental and Resource Economics  10:341-362.Gren, I-M. 2001. International Versus National Actions Against nitro-gen Pollution of the Baltic Sea. Environmental and Resource Eco-nomics  20:41-59.Hannula, A. Some Juva households’ food expenditures. In this volume.Larsson, M. How agricultural reforms can revitalize the Baltic Sea –Cost efficient measures to curb eutrophication. In this volume.Thomsson, O. Household food expenditures in Järna, Sweden. In thisvolume.Vihma, A. Measuring the Effects of Local Food on a Regional EconomyRegional Agro-Economic Model (RegAE) - An extended Input-Outputapproach. In this volume.˘˚Centrum för uthålligt lantbruk – CUL är ett samarbetsforumför forskare och andra med intresse för ekologiskt lantbruk ochlantbrukets uthållighetsfrågor. CUL arbetar med utveckling avtvärvetenskapliga forskningsmetoder och för samverkan och sam-planering av insatser för:• forskning• utvecklingsarbete• utbildning• informationsspridninginom det ekologiska lantbruket.Centrum för uthålligt lantbrukBox 7047750 07 Uppsalawww.cul.slu.seBaltic Ecological Recycling Agriculture and Society (BERAS) Nr. 3

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