An Examination of the Economics of Sustainable and Conventional Horticulture
Robin G. Brumfield1
ADDITIONAL INDEX WORDS. costs and returns, alternative agriculture, organic agriculture
SUMMARY. Since World War II, U.S. agriculture has reduced production costs by substituting petrochemicals for labor. Adverse impacts from chemical intensive agriculture include increased pest levels, groundwater and surface water contami- nation, soil erosion, and concerns about harmful levels of pesticide residues. Sustainable farming programs such as integrated crop management (ICM) and organic farming encourage farmers to use systems that reduce the adverse impacts of chemical agriculture. However, before farmers adopt an alternative system, they must determine that economic benefits from the alternative farming activities exceed the costs incurred. Unfortunately, relatively few studies have compared the cost of organic crop production with conventional production systems. Results of these studies are mixed. In some studies, organic systems are more profitable than conventional systems with organic price premiums, but are not economically viable without price premiums. In one long-term study, the organic system was more profitable than a conventional one if the cost of family labor was ignored, but less profitable if it was included. In some studies, net returns were higher for ICM than for conventional or organic systems, but in others, they were higher. Results also vary on a crop by crop basis.
t the beginning of the 20th Century, the United States was primarily an agrarian society. After World AWar II, however, agriculture followed the rest of the U.S. economy and adopted an industrial workplace model (Ikerd, 1996). The industrial model reduced the cost of production through economic incentives that incorporated economies of scale, comparative advantage, opportunity costs, specialization, automation, and simplification into work activities. These concepts provided a focus for the U.S. land grant system where researchers, producers, and agricul- tural support industries worked to increase productivity and reduce costs. U.S. agricultural productivity increased dra- matically. In 1940, 17% of the population was engaged in agricultural production. Today, less than 2% of the U.S. population works in agriculture and less than 10% of our disposable income is spent on food.
Department of Agricultural, Food, and Resource Economics, Rutgers, The State University of New Jersey, 55 Dudley Road, New Brunswick, NJ 08901-8520. The cost of publishing this paper was defrayed in part by the payment of page charges. Under postal regulations, this paper therefore must be hereby marked advertisement solely to indicate this fact. 1Specialist in farm management.
● October–December 2000 10(4) 687 Average U.S. farm size increased to conventional agriculture. Ulti- tainable agriculture to mean an inte- from 168 acres (68 ha) in 1990 to 487 mately, sustainable agriculture became grated system of plant and animal pro- acres (197 ha) by 1997 (USDA, 2000). the term used in policy areas related to duction practices having a site-specific United States agricultural productiv- questions of the environment and re- application that will over the long term: ity increased dramatically because of source conservation and the term or- satisfy human food and fiber needs; increased mechanization, new tech- ganic was used in the marketplace as a enhance environmental quality and the nologies, increased chemical and fer- label to differentiate among agricul- natural resource base upon which the tilizer use, and specialization. Govern- tural commodities (Klonsky and agricultural economy depends; make ment policies have also favored this Tourte, 1998). Ecolabling has gained the most efficient use of nonrenewable shift toward maximizing production. widespread acceptance in Western resources and on-farm resources and The industrialization of agricul- Europe, and initiatives have begun in integrate, where appropriate, natural ture and the development of synthetic Virginia and New York in the United biological cycles and controls; sustain chemicals and fertilizers allowed farm- States. Eco-labels are used to differen- the economic viability of farm opera- ers to increase yields and reduce risks. tiate products that are produced using tions; and enhance the quality of life These increased yields resulted in lower sustainable production practices such for farmers and society as a whole per-unit costs (Brumfield, 1996). Al- as IPM and low-input agriculture (Estes (Government Printing Office, 1990). though increased yields are a benefit to et al., 1999). Economists have proposed vari- both producers and consumers, sev- The organic movement empha- ous approaches to paying for unin- eral disadvantages have resulted from sized the relationship between agricul- tended costs of chemical based agri- the use of agricultural chemicals. As ture and resource conservation by culture. Lichtenberg (1992) proposed farmers increased rates and frequency emphasizing the limited use of nonre- three alternatives to regulation: liabil- of application of chemicals, target in- newable resources. Regulation of agri- ity, information, and taxes. Lichtenberg sects have developed resistance to par- cultural methods that focus on natural concluded that liability already was ticular chemicals, and some pest popu- systems and ecological processes is dif- being used for pesticide regulation for lations have increased dramatically ficult to accomplish because these poor product performance. However, (National Research Council, 1986; methods often are conceptual and open it becomes a poor policy instrument Office of Technology Assessment, to interpretation. Thus regulation of when environmental damage or health 1995). Other unintended costs of in- organic production became a list of and safety issues are concerned, and it dustrial agriculture include topsoil acceptable and unacceptable inputs is costly. He concluded that informa- depletion, groundwater contamination (Klonsky and Tourte, 1998), with most tion would be most effective in the (U.S. General Accounting Office, states having certification programs area of farm worker safety. Taxes tend 1991), damage to wildlife for organically certified products. Cer- to influence application rates on a con- (Lichtenberg, 1992), decline in the tification assures consumers that the tinuous basis, but cannot alter timing number of family farms, erosion of product was produced using organic of applications. Abler (1992) favored rural community economies (Feenstra methods and assures producers that market-based solutions to unintended et al., 1996), applicator health risks the term organic is not used unscrupu- side effects of chemical agriculture. (Lichtenberg, 1992), and concerns lously (Lohr, 1998). To avoid farming People can refuse to work with pesti- about chemical residues in foods by neglect or the overuse of organic cides that they view as unsafe, farmers (Hanson et al., 1990; Lichtenberg, chemicals, the Organic Foods Produc- can refuse to buy unsafe pesticides, 1992). tion Act of 1990 requires farm plans. and consumers can refuse to buy pro- In the late 1970s and early 1980s, Sustainable agriculture is a new duce they perceive as unsafe. Farmers environmental concerns spurred au- paradigm in which farmers and con- would use safer chemicals, and compe- thors such as Hodges (1978, 1982) to sumers recognize unintended side ef- tition would force reductions in per endorse organic agriculture as an alter- fects are likely through some produc- unit prices, which would be passed native to pesticide-based agriculture. tion practices. Scaller’s 1988 article in along to consumers. Harper (1992) In the popular press, authors such as Agricultural Outlook compared alter- argued that in developing policy tools Rachel Carson (1962), and later, native and conventional agriculture and to account for unintended negative Wendell Berry (1981, 1984, 1986) explained the increased public atten- side effects of pesticide use, both indi- criticized the widespread use of agri- tion paid to alternative agriculture. He vidual risks and aggregate health risks cultural chemicals, the industrializa- listed factors that would affect the should be taken into account. She tion of agriculture, and the sociologi- adoption of alternative agriculture: stated that both benefits and risks of cal impacts of post-World War II agri- commodity and input prices, farm and pesticides are overestimated. She also cultural methods. Many people began environmental policies, infrastructure proposed developing models that take to believe that the price we pay for and markets, transition, and research into account technological change and food does not reflect all the costs of and education. With initial appropria- economic adoption if and when pesti- production (Ikerd, 1990, 1996). By tion in 1987, Low Input Sustainable cides are no longer freely available or the 1980s, a host of systems including Agriculture (LISA) was USDA’s re- acceptable to consumers. It appears low input agriculture, alternative agri- search and education grants program. that a combination of policy tools is culture, integrated pest management, The 1990 Farm Bill expanded the likely to be used. integrated crop management, biody- program and subsequently renamed it Organic food sales are only 1% to namic agriculture, agroecology, regen- the Sustainable Agriculture Research 1.5% of retail food sales (Raterman, erative agriculture, and organic agri- and Education (SARE) program. The 1997). Organic production methods culture were proposed as alternatives 1990 Farm Bill defined the term sus- are used on less than 1% of farms and
688 ● October–December 2000 10(4) 1% of farmland engaged in U.S. veg- sells individual shares in the farm be- higher for organic strawberries than etable production (Klonsky and fore the planting season, thus giving for conventional strawberries. A study Tourte, 1998). However, the emer- the CSA an infusion of equity to pur- comparing fresh produce prices over a gence of organic agriculture repre- chase inputs without having to finance 15-month period in North Carolina sents a much larger impact on the the operation through credit. In turn, found, on average, about a 25% price paradigm shift from industrial agricul- the shareholders receive bags of pro- premium for certified organic produce ture to a new more sustainable agricul- duce from the CSA throughout the (Estes et al., 1999). ture (Darling, 1991). The principles growing season. CSAs often include Only limited attempts have been of sustainable agriculture are increas- consumers in the decision-making pro- made to analyze the economics of ingly being incorporated into conven- cesses of what produce to grow, how whole farm sustainable systems tional agriculture. Integrated crop to market, and whether labor as well as (Dhillon and Paladino, 1981; management, an ecologically based financial support is required by share- Goldstein and Young, 1987; Lockertz, approach to crop production that in- holders. Purchasing produce from a 1989). Studies such as that of Buttel et cludes management practices such as CSA requires more of a consumer’s al. (1986) began to compare organic minimum tillage, nutrient balancing, time than buying from a supermarket. and conventional agriculture in ways and integrated pest management This concept began in Japan in the that assessed not only the bottom line (IPM), has been widely adapted by 1960s where it was called “teikei,” in terms of profits, but also in terms of producers. Many farmers rotate crops, which means “putting the farmer’s the effects on the sustainability of fam- apply fertilizers in bands, mulch, stake face on food” (Van En et al., 1999). ily farms. Ray et al., (1992) reviewed and use other practices that reduce The idea traveled to Europe and was previous research into alternative agri- their dependence on synthetic chemi- introduced to the U.S. in 1985 by Jan cultural practices and discussed some cals to produce high quality crops. VanderTuin at Indian Line Farm in of the limitations of research. They After four decades of chemically de- Great Barrington, Massachusetts found the studies to be constrained by pendant agricultural research, land (Sabih and Baker, 2000). Today, there lack of reliable cost and return data. grant universities are now doing re- are over 1,000 CSAs in the US and Fox et al. (1991) reviewed the litera- search on sustainable agriculture, and Canada, mostly near urban areas. CSAs ture published between 1975 and 1989 chemical companies are introducing shift some of the production, market, on the economics of alternative agri- pesticides, fungicides, and herbicides and financial risk from producers to cultural systems. All the studies used which are less toxic and more environ- consumers. A study by Sabih and Baker budgeting or linear programming, and mentally benign (Darling, 1991). Pro- (2000) showed that CSAs gave farm- much of the data was based on only 1 ducers are finding that diversified farms ers a bigger share of returns and give or 2 years. They found no general are less economically and environmen- consumers lower costs than conven- pattern about the relative profitability tally risky (Cacek and Langner, 1986). tional agriculture. Farmers were able of alternative or conventional systems. Growing a large number of crops to realize substantially more income In a review of several farm-level spreads the economic and production than with traditional techniques. The studies comparing sustainable and con- risks and makes the farm less suscep- savings that consumers realized on ventional cropping systems, Lee (1992) tible to changes in supply and demand groceries yielded a return of 39%, which found that net returns and yields per for a specific crop (Harwood et al., was higher than alternative investment acre tended to be lower for sustainable 1999). Farm bills since 1985 have opportunities. cropping systems, but net returns could included funding for research and ex- Sustainable agriculture must be be comparable under certain condi- tension programs that develop more economically viable if it is to be adopted tions. Smolik et al. (1995) found an sustainable systems. As farmers be- by producers. Many producers are con- alternative row cropping system to be come more aware of the long-run costs cerned that while switching to organic more profitable than a ridge and till of over dependence on petrochemicals or ICM methods would be more envi- system in South Dakota. Madden and and fertilizers, and consumers con- ronmentally sustainable, it could be O’Connell (1990) found that many tinue to push for a safer environment unprofitable and risky (Williams, farmers who adopted sustainable meth- and safer food, both regulations and 1990). Very few studies have been ods experienced a slight decrease in the marketplace will encourage farm- conducted which compare the eco- gross returns, but an increase in net ers to adopt more sustainable systems. nomics of sustainable production sys- returns. Dobbs et al. (1991) found The organic movement not only tems to conventional ones. Studies that in side by side comparison of a changed production, but also has had relating to sustainable agricultural prac- conventional and alternative grain farm, impacts on marketing. For example, tices often contain no economic analy- costs, gross returns, and net returns Community Supported Agriculture sis (Gleason et al., 1992; Temple, 1991) were higher and labor requirements (CSA) is a partnership-marketing ven- or they focus only on one crop were lower on the conventional farm ture between organic farmers and con- (Baldwin, 1991; King, 1991). A 1997 than the alternative farm with no price sumers. CSAs represent a shift from Cornell study (Pritts and Kovach, premiums. Price premiums for organic the individualism of traditional agri- 1997), compared break-even prices products could have reduced or elimi- culture to a community approach to for conventional and organic straw- nated the difference in net returns. producing food; they also represent a berries (Fragaria ×ananassa Later studies by Dobbs (1994) found channel through which organic pro- Duchesne). The labor for weed con- organic farms to be competitive with duce can be distributed. CSAs depend trol was twice as high in the organic conventional and reduced tillage farms. on a direct link between local produc- system, and the yields were 30% to 70% In another study Dobbs (1994) found ers and the local community. The CSA lower. Break even prices were 34% profitability to be crop dependent.
● October–December 2000 10(4) 689 Conventional systems were more prof- ily labor and management. If the value Berry, W. 1981. The gift of the good land. itable than organic or near-organic of family labor and management and North Point Press, San Francisco, Calif: systems in corn–soybean areas, and the initial cost of investing in soil capi- Berry, W. 1984. The agricultural crisis as a organic and near-organic were eco- tal were ignored, organic rotations were crisis of culture, p. 219–225 In: G.K. Dou- nomically competitive in wheat areas. more profitable than conventional glas (ed.). Agricultural sustainability in a The University of California at ones, but if those costs are included, changing world order. Westview Press, Davis began a research project to study the conventional system was more prof- Boulder, Colo. conventional, low input, and organic itable. The organic system was ad- Berry, W. 1986. The unsettling of America: farming systems. This research con- justed as more information was learned Culture and agriculture. Sierra Club Books, sisted of 2- to 5-year field studies to about sustainable systems. Hanson et San Francisco, Calif. develop cost and return studies for al. (1990) found that the sustainable over 125 crops. The budgets included system was more profitable on average Brumfield, R.G., F.E. Adelaja, and S. a wide range of fruits and vegetables after the initial 5-year transitional pe- Reiners. 1995. Economic analysis of three tomato production systems. Acta Hort. and are available on line as well as in riod. In a study comparing tomatoes 340:255–260. printed form. (Klonsky and Tourte, produced using conventional, IPM, 2000; Klonsky, personal communica- and organic systems by Brumfield et al. Brumfield, R.G. 1996. Sustainable horti- tion). Organic price premiums rang- (1995), the yields were lower under an culture: An overview. HortTechnology ing from 7% to 125% existed for all organic system. However, because of 6(4):352–354. organic crops in the project. The or- an organic price premium of 30%, net Buttel, F.H., G.W. Gillespie, Jr., R. Janke, ganic system relied on price premiums returns per unit were higher under the B. Caldwell, and M. Sarrantonio. 1986. for economic viability, except for beans organic system. The costs per acre Reduced-input agricultural systems: Ra- (Phaseolus vulgaris L.), which were were highest in the organic system, tional and prospects. Amer. J. Alternative profitable even without the price pre- and the system changed as more infor- Agr. 1(2):58–64. mium. With price premiums, the or- mation was learned about organic sys- Cacek, T. and L.L. Langner. 1986. The ganic system had the highest net re- tems. The net returns per acre were economic implications of organic farming. turns, but without price premiums, it highest for the IPM system. These Amer. J. Alternative Agr. 1(1):25–29. showed an average net loss. On aver- results seem to indicate that costs will Carson, R. 1962. Silent spring. Houghton age, the low input system outperformed decline as organic systems are devel- Mifflin, Boston. the organic system without price pre- oped. miums, but had higher costs, lower The principles of sustainable agri- Darling, D.R. 1991. Research and educa- gross returns, and lower net returns culture are increasingly being incorpo- tion in the western region, p. 158–160. In: than the conventional system. In gen- rated into conventional agriculture. National Research Council. Board on Ag- eral, the low input system showed po- Producers must be convinced that sus- riculture (eds.). Sustainable agriculture re- search and education in the field: A pro- tential to decrease the costs of chemi- tainable systems are profitable before ceedings. Natl. Acad. Press, Wash., D.C. cal inputs and to maintain gross re- they will adopt them. Differences in turns in comparison to the conven- costs and returns of conventional, or- Dhillon, P.S. and B.A. Paladino. 1981. tional system, but this varied with some ganic, and sustainable production sys- Characteristics of organic vegetable farms crops. Yields of low input tomatoes tems vary with crop and assumptions in New Jersey with estimated costs and (Lycopersicon esculentum Mill.) were made. In general, organic systems rely returns for selected organic crops. Cook College—Rutgers the State Univ. N.J. Agr. similar to yields of conventional beans, on price premiums for economic vi- Expt. Sta. Publ. 381. but yields of low input corn (Zea mays ability. If producers are going to adopt L.) and beans were higher than with more sustainable systems, more re- Dobbs, T.L. 1994. Organic, conventional, conventional production. Organic pre- search is needed to develop systems and reduced till farming systems: Profit- miums appear to be required for prof- and reduce costs of organic and ICM ability in the Northern Great Plains. itability. With price premiums, the or- systems. Methods that include the true Choices, 2nd Quarter. p. 31–32. ganic system was the most profitable. costs of production, including family Dobbs, T.L., J.D. Smolik, and C. Mends. In longer-term studies, sustain- labor and unintended negative side 1991. On-farm research comparing con- able systems seem to fare better than effects, need to be developed. Policy ventional and low-input sustainable agri- conventional systems, depending on tools that can account for these costs culture systems in the northern Great Plains, the assumptions and how costs are include regulations, liability, informa- p. 250–265. In: National Research Coun- calculated. Hanson et al. (1995) com- tion, taxes, risk-benefit models, and cil Board on Agriculture (eds.). Sustain- able Agriculture research and education in pared a conventional and organic rota- market-based solutions. the field: A proceedings. Natl. Acad. Press, tional system in an on-going farming Wash., D.C. systems trial at the Rodale Institute Literature cited Research Center in Kutztown, Pa. They Estes, E.A., T. Kleese, L. Lauffer, D. constructed budgets for three 5-year Abler, D.G. 1992. Issues in pesticide policy: Treadwell, and R. Burton. 1999. An over- time periods. During the two later Discussion. N.E. J. Agr. Resource Econ. view of the North Carolina organic indus- 19(2):93–92. try. ARE Rpt. 17, N.C. Agr. Res. Serv., time periods, the yields of organic corn N.C. State Univ., Raleigh. and soybeans (Glycine max. L. Merr.) Baldwin, F.L. 1991. Developing and ex- were comparable to yields in conven- tending minimum input strategies for weed Feenstra, G., C. Ingels, and D. Campbell. tional systems. However, the organic control in agronomic and horticultural with contributions from D. Chaney, M. R. systems produced higher-value crops crops. Univ. Ark. Coop. Ext. Sustainable George, E. Bradford, the staff and advisory less frequently, and required more fam- Agr. Res. Educ. Rpt. LS88-11. committees of the Univ. Calif. Sustainable
690 ● October–December 2000 10(4) Agriculture Research and Education Pro- Ikerd, J.E. 1990. Agriculture’s search for Pritts, M. and J. Kovach. 1997. Organic gram (SAREP). 1996. What is sustainable sustainability and profitability. J. Soil Wa- strawberry production systems.18 July agriculture? 16 July 2000.
● October–December 2000 10(4) 691