Profitability in organic farming

AN interesting research sponsored by the South Asian Network for Development and Environmental Economics reveals that growing organic crops is at least as profitable as crops nurtured on synthetic inputs despite their low yields in Punjab. It is because of their low input costs and significant high price premium.

Further study reports that organic farms tend to better conserve soil fertility and system stability than conventional farms.

Importance of agriculture in Pakistan economy needs not to be over emphasised. It accounted for 20.9pc of the Gross Domestic Product (GDP) in 2014-15 and is a source of livelihood of 43.5pc of rural population. However, farmers are under great stress as their profits are shrinking sharply which may pose food security threats to the country’s 190m people.

Current farming practices in Pakistan heavily rely on the use of chemical inputs and high yielding varieties. This has led to a decline in soil fertility and loss in topsoil, organic matter and the crop production potential of soils. These problems are especially important in the wheat-rice belt, the breadbasket of northern India and Pakistan, which covers over 12m ha and provides food security for some 500m people. The conventional farming brings small profits due to the continued increases in input costs and stagnant market prices of agricultural outputs (especially major crops like wheat, rice and cotton) resulting from government interventions that distort relative prices.

Organic farming has the potential to address some of the threats to agricultural sustainability. It is a well-defined method of production that tends to minimise the use of costly synthetic inputs, such as fertilisers, pesticides, herbicides and medical products and makes agriculture environmentally sustainable and economically viable. It avoids nutrient exploitation and increases soil organic matter content.

Soils under organic system capture and store more water than soils under chemicals-used cultivation. Integrated organic approaches also demand more labour inputs. In addition, higher prices can be realised via organic certification. Higher farm incomes are thus possible due to lower input costs and higher sale prices.

This research compares the productivity and profitability of organic and conventional farms that grow two major crops, wheat and rice, based on primary data collected from farms located in three districts-Gujranwala, Sheikhupura and Okara of Punjab. The study shows the overall, input costs are 20pc and 10pc lower in organic wheat and rice farms relative to their chemical counterparts. The average organic farm produced 14pc less wheat and 44pc less rice per hectare relative to the average ‘conventional’ farm.

However, organic crops earn significant higher price premium. The benefit cost ratio is also higher for organic crops as compared to ‘conventional’ crops. But an interesting question arises: if there is a significant difference in profits, one would expect an en-masse shift from one system to the other, which has not been observed. In fact, if fertiliser and pesticides subsidies for agriculture are withdrawn or a subsidy for organics is introduced, there may be a natural shift to organic farming as this would tilt the profit balance.

Organic agriculture needs to be encouraged as it is an economically as well as ecologically viable farming. It can ensure sustainable use of natural resources: the labour intensive nature of the organic farming would also provide more employment for rural unskilled workers, and save valuable foreign exchange used to import chemical fertilisers and pesticides.

Stakeholders point out four problems of organic agriculture: first, markets for organic products are not well developed; secondly, the organic inputs are not easily available to farmers. For pest and weed control, farmers are constrained to use only mechanical and biological methods to which they have immediate access. No subsidies are available for organic products.

  • Published in Dawn, Economic & Business, June 22nd, 2015
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