In Denmark, the share of demand for organic food has increased steadily over the last 10 years, reaching a market share of 8.6 % in 2014. Similar trends can be observed in other European countries and the US. (Organic Denmark, 2015).

Several reasons exist, however, for the fact that organic products still have a relatively small market share.  One factor is the price that the consumers face: prices of organic products are generally higher than more traditionally produced food, mostly attributed to higher costs of production. On average, organic chicken is twice as expensive and organic fruit about 50 % more expensive than non-organic products.

From the outset, organic farming is thought of as providing a variety of external benefits and public goods compared to conventional farming. From an environmental economics point of view, goods that produce positive externalities should be subsidized in order to increase social efficiency. However, in order to make a proper environmental economics analysis we need to evaluate organic farming with respect to all external effects.

The main areas where organic farming products have been argued to have larger positive externalities and/or fewer negative externalities are: Biodiversity and environmental protection, livestock health and welfare, climate control and energy savings, and finally, providing support of development in rural areas.

The food producing sector can be divided in three broad categories: livestock, crops and fruits/vegetables. In this blog entry I will highlight only few examples of external benefits for each category. For a more comprehensive discussion, see the report from ICROFS (2015).

The first comparison is the difference in support of biodiversity between organic livestock and traditional livestock production. One indicator that approximates the effect of type of farming on biodiversity is the ratio of cultivated to non-cultivated land in these two types of farming. Take e.g., milk production. Here, on average, organic farms are larger but somewhat less intensive than conventional farming. For a Danish dairy cow farm with 100-199 cows, the average land used is 197 for organic and 134 for traditional farming, while the area of non-cultivated land is 5.4 and 2.6 ha, respectively. Therefore, organic milk production will not in fact provide larger non-cultivated areas where biodiversity can flourish.

Moreover, for these types of organic farming, there is no reason to suspect that they will support rural development to a greater extent than does more than traditional farming.

A distinct feature of organic livestock farming is that animals have access to outdoor areas to a much greater extent than the traditional farmed livestock. However, this results in more pollution, especially in the form of ammonium evaporation (this might be most severe for pig and chicken farming). On the other hand, the feed for organic cows will be organic feed and therefore grown without the use of pesticides. The net impact is difficult to ascertain.

Animal welfare is via definition higher in organic farming, and establishes a public good in the sense that animal welfare is non-rival and non-excludable.

All in all, for organic livestock farming there are both positive and negative externalities compared to traditional farming, and the issue that really makes the difference is animal welfare.

According to Seufert et al (2012), organic crops yield is on average 25-35% lower, mainly attributable to lack of nitrogen and the non-use of pesticides. Altogether, organic crop farming provides a good foundation for larger species richness and abundance adding positively to biodiversity.

On the other hand, while yield is lower, the usage of energy per produced unit is the same for organic and traditional framing, and therefore, the CO2 emissions per produced unit is larger for organic crops farming. However, the indirect impact might be smaller since less impact from production of inputs to production.

For other types of pollution problems, organic farming contributes less to drinking water pollution and eutrophication. It should be noted that in most cases, these externalities are already regulated though e.g., environmental taxes.

In a broader perspective, organic production might compromise food security given that global food demand as expected will continue to increase, unless organic crops production will increase its productivity relative to traditional production.

All in all, there is nothing that supports that organic crops production produces external benefits that warrant price-subsidization, except for the increase in biodiversity in the fields.

Putting things together, the organic crops production in particular provides external benefits regarding increased biodiversity. For livestock, mainly animal welfare and indirect effect of eating organic feed provide the benefits.

Therefore, both categories, from a socially efficiency point of should be subsidized in order to promote a larger production / consumption to an extent that accommodates how much these external benefits are valued in the society.

 

Sources:

Organic Denmark (2015): http://organicdenmark.dk/media/236748/organic-market-memo-2015.pdf

ICROFS(2015), Økologiens bidrag til samfundsgoder, Vidensyntese 2015: http://icrofs.dk/fileadmin/icrofs/Diverse_materialer_til_download/web_OKvidensyntesen_okt_2015.pdf

Brandt, Svendsen (2016), The politics of persuasion: Should lobby be regulated in the EU? Edward Elgar, Cheltenham, UK. Chapter 5:

Seufert, V., N. Ramankutty and J.A. Foley (2012), ‘Comparing the yields of organic and conventional agriculture’, Nature, 485, 229-233.