CHAPTER 4: NON-TRADITIONAL AGRICULTURAL DIVERSIFICATION STRATEGY – THE
4.5. Critical Analysis of the Profitability, Environmental Impact and Export Potential of Organic
4.5.1. Economic Impact
At present, sub-Saharan Africa‟s organic agricultural sector remains relatively small and underdeveloped. In fact, Africa accounts for a mere 1% of the world‟s land under organic management. Much of sub-Saharan Africa‟s small organic agricultural sector focuses on the export market, with the majority of exports destined for the EU. However, these exports originate from a handful of countries in the region. Sub-Saharan Africa‟s organic export products include fresh vegetables, bananas, coffee, tropical fruit, tea, sugar, cotton and honey (Raynolds, 2004; Parrot et al., 2006).
4.5. Critical Analysis of the Profitability, Environmental Impact and Export
Net Income or Profits = (Price x Quantity Sold) – Total Costs (4.1) Each of these variables will be examined along with a review of relevant case studies and quantitative studies.
4.5.1.1. Price
Certified organic agricultural produce is generally sold at high international prices, with premiums up to 20% higher than non-organic equivalents. This manifests at both a farm and retail level and is a major motivating factor for many farmers to convert to organic farming. Globally, the average price premiums vary from 20% to 40%, and are dependent on individual products, seasons and the balance of demand and supply in the market in the short run. These price premiums reflect the „organic‟ nature of this produce and provide justification to farmers for the high costs incurred through certification (Forss and Sterky, 2000; Harris et al., 2001; Raynolds, 2004; Greer, 2008).
Offermann and Nieberg (2000) examined the prices of organic produce in 18 European countries and found considerable variations across countries and produce. The study concluded that it is difficult to generalise about organic prices due to different markets for organic produce and the unequal access farmers have to these markets. However, despite the lack of global organic price data, it is still beneficial to consider the price premiums experienced in specific cases to identify the profitability of organic sectors.
Some studies have highlighted the significant price premiums organic produce in sub- Saharan African countries have fetched. For example, Kleemann and Effenberger‟s (2010) study compared the prices of conventional and organic pineapple from Ghana, Côte d‟Ivoire and Costa Rica in the European market for the period of September 2007- August 2009. Organic pineapple price premiums varied from €0.00 to €0.76 and had a mean of €0.50 and a standard deviation of €0.20. It was also found that organic pineapple prices have tended to be more stable in the short run, experiencing fewer and gentler fluctuations than the prices of conventional pineapples.
A number of organic farmers in sub-Saharan Africa have enjoyed higher prices for their
highlights that organic cotton farmers fetch price premiums as high as 25%. Uganda‟s organic sesame also received a price premium of 24%, whereas conventional sesame was sold for US$0.29 per kilogram and organic sesame for US$0.36 per kilogram.
Interestingly, when the price of conventional sesame fell to US$0.26 per kilogram, the price of organic sesame per kilogram remained unchanged at US$0.36. Examples of considerably large price premiums were evident in Uganda in 2004 for organic apple- bananas and passion fruit, which earned premiums of 212% and 100%, respectively (Twarog, 2006). Ferrigno et al. (2005) indicate that organic cotton farmers generally receive a 20% price premium relative to conventional cotton farmers.
While the price premiums appear to be impressive for a number of organic products, there is some debate as to whether these premiums are sustainable in the long term.
Giovannucci (2006) points out that there seems to be a declining trend in these premiums received by farmers, especially with the highly competitive products such as rice and coffee. In a survey of European countries, Hamm et al. (2002) observed that the average consumer price premiums fell to between 15% and 40%. In countries where supermarket chains are dominant in the trade of organic produce (such as the UK), prices are inclined to be approximately 20% lower than the European mean. This declining trend in price premiums also appears to be present in the US.
Didier and Lucie (2008) attribute this declining trend in organic price premiums to increasingly competitive organic sectors and markets and to the economies of scale incurred while shipping, processing and distributing organic produce due to the heightened trade levels of organic products. However, this has not been the case for all countries and all products. Kleemann and Effenberger (2010) tracked the prices of organic pineapples in Ghana, Côte d‟Ivoire and Costa Rica between September 2007 and August 2009 and found a fluctuating rather than declining trend. However, the limitation of Kleemann and Effenberger‟s (2010) study is its short-term nature. A longer period of study is necessary to substantiate or dispute existing studies that demonstrate declining price trends and to determine whether developed and developing countries differ in this respect.
The high price premiums generally signify high demand, thus enabling farmers to identify which markets they can expand in. An example of this is the significantly high premiums experienced in Uganda in the organic apple-banana and passion fruit markets
in 2004, namely 212% and 100%, respectively (Twarog, 2006; Steven-Garmon et al., 2007). Organic fresh fruit and vegetables have been identified as the most prominent product group in the trade of organic products. These commodities are considered important in organic trade because of their market size, the high number of producing countries and the significant consumer interest. Furthermore, organic fruit and vegetables are considered „entry products‟ for consumers switching to purchasing organic products.
Developing countries are therefore encouraged to supply organic produce in these food groups, paying particular attention to off-season vegetables and tropical fruit as these have the greatest trade and price prospects. There is an increasing market for processed organic fruit and vegetables, including fruit juices, dried fruit and canned fruit and vegetables, which provides sub-Saharan African countries with further value-adding opportunities (Kortbech-Olesen, 2006).