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
4.5.1.3. Total Costs
The total production costs are generally lower for organic agricultural systems than conventional farming systems. This is because synthetic inputs are prohibited in organic
agriculture (Offermann and Nieberg, 2000; Greer et al., 2008; Nemes, 2009). The total cost of an organic farming system comprises direct costs of production and costs related to transport, storage and certification. The direct costs of production include costs related to land, labour and capital, where the capital costs include the purchase of seed, planting materials and fertilizers (Twarog, 2006).
The cost structures of organic agriculture in developed and developing regions differ substantially. Bolwig et al. (2008) point out that in sub-Saharan Africa, the fixed cost component of organic farming is a minor share of the revenue, with variable or direct costs making up a large share of the costs associated with organic farming. Fixed costs refer to long-term costs such as land investments, buildings and equipment. Organic agriculture is more labour intensive than conventional agriculture. However, for smallholder farmers in developing regions like sub-Saharan Africa, labour requirements are sourced largely from within the family. Thus, the opportunity cost of labour is relatively small. For large-scale organic farmers, it may be necessary to employ extra labour, which increases the cost of production.
As organic agricultural systems prohibit the use of any form of synthetic inputs, organic farmers almost completely avoid these costs. Not using these synthetic inputs also reduces farmers‟ debt requirements. Musime et al. (2005) add that in sub-Saharan Africa, the small volume of synthetic inputs used in conventional smallholder farming is financed through loans with high interest rates. Farmers are forced to purchase these inputs on credit, as the revenue generated by their farming operation is not sufficient to make such purchases. The plight of farmers in many sub-Saharan African countries has worsened since the removal of the marketing boards when the structural adjustment programmes were initiated in the early 1980s, as smallholder farmers obtained relatively cheap finance and subsidies through these marketing boards. Organic farmers can avoid these high interest loans and thus, the savings incurred can typically offset the cost of any additional labour. Some studies, however, indicate that this does not have a profound effect on most sub-Saharan African organic farmers as inputs in the conventional, traditional farming systems are greatly lacking (Ng and Yeats, 2002; Diao and Hazell, 2004; Hine and Pretty, 2006; Gibbon et al., 2008).
The results of numerous sub-Saharan Africa case studies substantiate the claim that the
conventional systems. For example, Kleemann (2011) found that, despite the fact that organic pineapples had lower yields than conventional pineapples in Ghana, the cost of producing organic pineapples was US$0.085 per kilogram whereas conventional pineapples cost US$0.093 kilograms to produce. Gibbon and Bolwig (2007) compared, amongst other variables, the production costs of organic coffee, cocoa and pineapples with those of their conventional counterparts in Uganda. The production costs in this study were classified according to fixed costs and variable costs. The fixed costs of organic coffee, cocoa and pineapples ranged between 4.7% and 6.7% of the average gross farm‟s income. This indicates low investment levels, as fixed costs comprise land, interest on farm loans, equipment, planting materials, fertilizer and scheme membership.
The fixed costs of conventional coffee, cocoa and pineapples represented higher shares of the average gross farm‟s income in Uganda. These shares, however, varied greatly across the three crops. For example, the fixed costs associated with conventional coffee were only slightly higher than those of organic coffee; however, for cocoa, they were triple that of organic cocoa and for pineapples, they were ten times higher than with organic pineapples, having an approximately 71% share of the average gross farm income. The variable costs included hired labour, seasonal inputs and marketing costs. Gibbon and Bolwig (2007) conclude that the variable costs of organic pineapples and cocoa were lower than those of conventional pineapples and cocoa. However, in the case of coffee, the variable costs were similar across both organic and conventional produce. In most cases, the cost of labour formed the highest share of variable costs.
The greatest cost that certified organic farms in sub-Saharan Africa and the rest of the world face is that of certification. Certification costs and the annual inspections are of particular concern to smallholder organic farmers in sub-Saharan Africa who want to enter the export market. Algra and Rijninks (2000) state that the certification costs necessary to enter the EU markets are too costly for farmers with a cash income of less than US$2000 per annum. The cost of certification can vary between 1% and 4% of the value of a farm‟s organic produce (Rundgren, 2008). As a result, many farmers in sub- Saharan Africa consider this a major obstacle to converting to certified organic farming (Niemeyer and Lombard, 2003; UNCTAD, 2004). This, however, can be turned around through collective action and group certification. The Ezemvelo Farmers‟ Organization in Umbumbulu, South Africa, is a prominent example of how farmers can share the costs of certification (Gadzikwa et al., 2006).
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).