CHAPTER 4: NON-TRADITIONAL AGRICULTURAL DIVERSIFICATION STRATEGY – THE
4.5. Critical Analysis of the Profitability, Environmental Impact and Export Potential of Organic
4.51.2. Quantity
4.5.1.4. Profitability
At present, the certification of organic farms in sub-Saharan Africa and much of the developing world is largely carried out by inspection bodies in North America and Europe. Consequently, the cost of certification is quoted in foreign currency, which many sub-Saharan African countries and farmers lack because of their downward-spiralling terms of trade and the marginalisation in world trade that they have experienced since the 1980s. This potentially limits smallholder farmers‟ market access to North America and Europe, which are the world‟s most prominent organic export markets (Neuendorf and Koschella, 2001).
However, the cost of certification can be reduced by engaging in group certification.
Group certification involves the formation of a group of smallholder farmers, the members of which are then certified as a unit rather than on an individual basis. This group is usually controlled by an „Internal Control System‟ (ICS) that is monitored by certification bodies. Group certification ensures that the cost of certification is shared by all farmers within the group, thus making certification more feasible for these smallholder farmers. A further benefit of group certification is that it is easier for farmers to gain market access on a group basis than on an individual basis. This method of certification has proven to be successful and viable for smallholder farmers in Uganda (Raynolds, 2004; Hine and Pretty, 2006; Preiβel and Reckling, 2010).
particular, in Africa. The findings of the few existing studies all present similar results, namely that organic agriculture tends to be more profitable and has a greater export market potential than conventional organic farming (Bolwig et al., 2009; Gibbon et al., 2009; Owusu and Owusu, 2010; Kleemann, 2011). It should be noted that, to date, studies of this nature in developing countries have generally reflected results over the short term. This is because the formal organic agricultural sectors in these countries are still considered embryonic. In addition, the results of a number of these studies are based on interviews with farmers. This may influence the quality of the data about organic agriculture in developing countries (Nemes, 2009).
Theoretically, the higher yields achieved by organic systems in developing regions with historically low-input agricultural systems, coupled with the low production costs and price premiums, should result in higher net returns and greater profitability for organic systems than that experienced with conventional systems (Twarog, 2006; Kilcher, 2007;
Nemes, 2009). A few case studies that examined the profitability of organic agriculture in various sub-Saharan African countries found that organic farming is more or less as profitable as conventional farming. Some of these studies include those by Kleemann (2011), Gibbon and Bolwig (2007), Lakhal et al. (2008), Gibbon et al. (2009) and Hough and Nell (2003).
Gibbon et al. (2009) examined the effects on revenue of organic contract farming and the use of organic methods in tropical Africa. This study compared organic systems with conventional farms with no contractual relations using a survey and a standard OLS regression approach. The results revealed positive revenue effects for certified organic produce, which arose from participation in contract farming schemes and, to a lesser extent, the adoption of organic farming methods.
A study by Lakhal et al. (2008) compared the gross margins of organic and conventional cotton in Mali. The results show that organic cotton has higher gross margins than conventional cotton, despite the fact that organic cotton has a lower average yield than conventional cotton. The average organic cotton yield is 570 kilograms per hectare while conventional cotton yields are, on average, 1127 kilograms per hectare. These lower yields, however, can be attributed to the fact that formal organic cotton farming has only existed since approximately 2005, whereas conventional cotton has been well established for 30 years. The higher gross margins for organic cotton are partially a result of price
premiums and organic cotton farmers presently do not pay for the cotton seed nor for their organic certification. The certification costs are borne by Helvetas, a Swiss non- governmental organisation that works closely with organic cotton growers around the world (Bassett, 2010). Lakhal et al. (2008) conclude that converting to organic cotton can increase farmers‟ profits in the medium to long term.
Gibbon and Bolwig (2007) have compared the relative profitability of certified organic and conventional agricultural operations. Their study was based on three surveys of smallholder farmers in Uganda on organic coffee, organic cocoa and organic pineapples.
The results conclude that farmers participating in certified organic export production displayed significantly higher levels of profitability across all three commodities than those farmers involved in conventional agricultural production. In addition, organic pineapples displayed the highest level of profitability: three times that of organic cocoa and five times that of organic coffee.
Hough and Nell (2003) assessed the financial viability of growing organic wine grapes versus conventional wine grapes in the Vredendal district, South Africa. They compared the costs and incomes of conventionally and organically produced wine grapes and conducted a risk sensitivity analysis for both the price and yields of both production methods. The break-even production was also calculated. The study was based on 2 hectares of planted Shiraz and 1 hectare of planted Cabernet Sauvignon. The results of Hough and Nell‟s (2003) study revealed that it was profitable to produce organic wine grapes since the gross margin was positive and the existing production levels were able to cover operational and total costs. The break-even production level was below budget for both conventional and organic methods. It should be noted that the organic wine grapes in this study were in their first year of organic production, thus indicating the farm‟s positive conversion to certified organic wine grape production. However, this short period cannot be used to predict future trends in organic wine grape production in this region.
Further to the evidence of organic farming‟s profitability in some sub-Saharan African countries, the organic sectors in countries such as Uganda, Kenya, Tanzania and Zambia have experienced substantial growth. Muwanga (2010) points out that organic exports from Uganda have grown an average 60% per annum between 2007 and 2009. Currently,
were 40 000 in 2004. There has also been a considerable increase in the number of exporting companies focusing on organic products since 2004. In 2004, there were less than 12 companies working in the organic sector in Uganda, while there were 44 companies in 2009. Similar trends have been noted in Kenya, Tanzania and Zambia.