I already sent a copy of my note on organic land value to Gary Huber.
Actually, its the same one that I sent to the Mr. Clevenger in Santa Clara
on behalf of the farmer in Hollister. I realize that I didnot send a copy
to you, so here it is! I'll post it to the SANET in case its of use to
anyone else.
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+++++
>Dear Gary:
>
>A couple of months ago I got a request from a Calif. farmer in the same
regard. His land was about to be condemned for a state hiway, and the state
was refusing to acknowledge the value of organic land over and above
non-certified land. I wrote a couple of pages and sent it to his appraiser
for use in court. Apparantly it worked.
>
>There are two basic reasons to give organically certified land a higher price:
>
>1. It has the potential for being more profitable than non-certified land
because its product can be certified and sold at a premium.
>
>2. There is a real cost involved in becomming organically
certified--usually a transition period, where the product still gets
ordinary prices and where the yields are sub-par. Plenty of evidence exists
suggesting that it takes a number of years to get an organic farm producing
at near potetial. Good source here is Nick Lampkin's book, Economics of
Organic Farming--I cant remember the publisher, but its from England, its
recent, and there's a long chapter on the economics of transition with
evidence from Germany and Pennsylvania among others.
>
>
>The tone of my two pages is a little pedantic, but it was supposed to sound
official.
>
>I'll just copy the two pages here rather than trying to 'attach' them; my
luck with sending attachments is spotty.
>
>Hope this helps.
>
>Yours Truly,
>
>
>Ed Sparling
>Professor of Ag Econ, Colorado State University
>
>___________________________________________________________________________
_________
>
>Valuing Certified Organic Farm Land
>
>Organic farming is profitable. This is suggested by its rapid growth during
the last 7 years. especially in California. Industry publications report six
consecutive years of growth exceeding 20% per year. Total sales of organic
food in 1994 was reported to be over $2.5 billion in the US.
>
>The Packer, a national trade paper for the US wholesale and retail fresh
produce market, publishes an annual report, Fresh Trends. The space
dedicated to organics in the 1996 edition reflect the importnace of this
growth: three articles are dedicated to organic produce-- 5 2 pages out of
fewer than 50 (excluding adds). According to those articles, the US retail
market for organic fresh fruits and vegetables was $370 million in 1994.
Califoria=s share of that market is greater than half.
>
>On its face, this rapid growth of organic production suggests organic
methods may be more profitable than conventional methods. This advantage
has two possible sources: higher prices for organically produced food and
lower costs in their production.
>
>For some crops, costs of organic production may actually be lower than
costs of conventional production. Wine grapes are an example. Consider E&J
Gallo=s much publicized adoption of organic production methods (National
Public Radio, 1993 and National Geographic, Nov, 1995). Since Gallo does not
advertise their product as organic (it is not, since not all their grapes
are grown organically) we must believe that what they say: it is cheaper to
grow the grapes using organic methods.
>
>Organic production is not cheaper in all crops. But higher market prices
can more than offset the difference in costs. Prices are for quality
organic produce are generally 20% to 200% above prices for similar
conventional produce. Our 1991 study found an average retail premium of over
60% in Colorado supermarkets. Conklin=s Arizona study at the same time found
an average The enclosed AOrganic Wholesale Market Report@ from Organic
Market News and Information Service (OMNIS) illustrates that these margins
had not dissappeared by September, 1994.
>
>These price differentials are unlikely to dissapear soon. The Packer
commisioned Market Facts, Inc. to survey consumers attitudes toward produce
for their 1996 Fresh Trends. Using their nationwide panel, Market Facts
found that the most frequently given reason for buying organics was ALiked
appearance/looked good,@ [24%] and the second most frequent reason was
ALooked fresher/riper,@ [17%]. More over, of the 23% of consumers
purchasing organics in the past 6 months, 24% were 'extremely satisfied'
with the quality of organic produce and 51% were 'very satisfied.' For all
produce, the figure were 10% 'extremely satisfied' and 47% 'very satisfied.'
This suggests that consumer perceptions of organics are favorable and that
they will continue to be willing to pay a premium for this produce.
>
>Finally, the costs of transition from conventional to certified and fully
productive organic farming must be considered. The transition begins by
withdrawing use of synthetic chemicals. Fertilizers and pesticides are
replaced by a combination of beneficial organisms, compost, cover crops, and
crop rotations. But the effects of these amendments/techniques are not
immediate, rather they have a long lasting and cummulative effect. For
purposes of certification, the transition from conventional to organic
agriculture takes from 3 to 5 years depending on which standards are
applied. To realize the full productive potential of organic agriculture,
the transition can take even longer.
>
>It is accurate to liken an organic farm in full production to a business
which has built its reputation for many years: there is a value of the going
concern. Just as a merchant invests in good will of custumers and suppliers
by conducting business in an honest and trustworthy way, the organic farmer
has been investing in soil fertility through years of compost application
and cover cropping. For many organic practices, only a fraction of the
benefits accrue in the year of application. Compost gradually becomes part
of soil humus, and it gradually minearlizes nutrients in a form used by
crops. The same is true of green manure crops and development of habitat
for beneficial organisms. It is quite accurate to term these practices
'investments.'
>
>To sum it up: the rapid growth of organics and the high prices of organics
in the market suggest organic agriculture is more profitable than
conventional. But organic production requires 'investment' the fields where
organic crops are grown. There is a minimum 3 year period required for
transition between conventional and organic certification. There is also
the longer period required to invest organic fields with the organic matter
and beneficial organisms needed for full productivity. A fair market value
for taking productive organic land would include the price of similar
conventional land plus the cost of taking the land through transition to
productive organic. The transition cost would include the cost of
operations plus the penalty the price and yield penalties the farmer would
suffer while the new land is in transition.
Ed Sparling
Professor
Dept of Ag and Resource Econ
Colorado State University
Ft Collins, CO 80523
Phone 970-491-6846
Fax 970-491-2067