May 1998
I meet a lot of people on my delivery route, responding to inquiries, greeting customers at our organic food store. The most common concern is about cost: "Why is organic food so expensive?"
How expensive is it? Here are some typical consumer prices: $3/dozen for organic eggs versus $1.89 for conventional, $3.50/pound for whole chicken or turkey versus $1.39, $6 to $7 for 4 litres of milk versus $4. And some of these prices are direct consumer-farmer transactions.
On one hand, more consumers would choose organic food if it was more affordable, available and convenient. On the other hand, organic producers are quite happy with the premium prices. So why does this situation exist?
The simple law of supply and demand is one factor behind certain high prices for organic food. When cabbage patch dolls were in short supply one Christmas, the price went through the roof, but some people still bought them. Likewise, many consumers in Canada and abroad desperately want organic food either out of principle or because of their physiological intolerance to agro-chemicals. But the supply is not catching up; for example, organic soybeans reached a farm-gate price of $1000/tonne last winter. No-one can argue that it costs that much to produce soybeans, but when there are more buyers than farmers, the highest bid wins.
The second reason relates to the organic food industry’s early stage of growth. The VCR, CD player, microwave oven, Walkman, personal computer, cellular telephone all dropped their prices to a fraction of their initial price. The high initial price is related to the initial niche market, the cost of building a new industry, the margins required to finance growth, the high overhead in marketing, research and development versus the low volume of sales. These start-up businesses are still young, experimenting with new organic processes, new products and new markets; all this learning costs a lot of money.
Thirdly, and closely linked with the infancy stage as explained above, the market is small and the players are small. Thus, it costs a lot to produce a small volume. Organic farms currently tend to be small operations, but organic farming is not limited to a small scale as there are organic farms in the hundreds and thousands of acres. Everyone knows that farming is an expensive business; hence most conventional farms have grown significantly over generations to stay profitable. Consequently, an organic egg producer cannot sell for less with only 100 hens.
Organic processors, elevators, manufacturers and retailers are also small operations and the unit cost of production is relatively high. The overhead is spread over a small base and the production volumes are below the optimal capacity. As these businesses increase their market, they will expand their capacity, optimize their processes and advance along the learning curve. Ultimately, they will achieve the economy of scale typical of the mainstream food industry.
Bigger is not always better. The organic community values the small size. Many consumers want to buy directly from the producer, a relationship that is often exclusive to small operations. A small operation lends itself well to the mindset required to protect the integrity of an organic product versus the intensive farming commonly seen today. Given this value of "small is beautiful", consumers can expect to pay more to a small producer. But organic production must achieve a greater economy of scale to make the food affordable to more people.
Finally, there is the debate that organic production is more expensive than conventional production. The reality is that the organic producer personally bears several indirect costs and factors these into his/her product. Organic farming include the costs of environmental protection: crop rotations including certain less profitable crops, fallow lands for soil rejuvenation, manure composting for nutrient retention, wind breaks and cover crops to reduce erosion, stream protection to avoid pollution from livestock, agro-chemical avoidance to avoid air and water pollution, etc.
But in our world today, who pays the grants to plant trees, finance the Environmental Farm Plan, provide training in pesticide handling, finance regional water-way conservation agencies, build water treatment plants, provide erosion counter-measures? By adding up all the societal costs of agriculture, perhaps a thorough study would reveal that the TOTAL cost, on a comparable scale, of organic food is less than that of conventional food.
I invite the consumer to have patience while organic food becomes more affordable in the near future; your demand for organic food will stimulate growth. I invite conventional farmers to take advantage of the situation, to learn organic methods while the price is high and benefit from that experience when the price eventually stabilizes and organic food joins the mainstream.
Many people want organic food, but it is difficult to find nearby at an affordable price. Canadian Organic Growers (Ottawa chapter) publishes a list of organic producers in Eastern Ontario. These producers offer farm-gate sales and also attend some farmers’ markets in their vicinity. The list has a wide selection including produce, fruit, poultry, grains, etc. Visit the undersigned for a free copy of the producers list; consumers can contact producers directly.
A contribution by Tom Manley
President of Homestead Organics