Organic labels often less profitable than other sustainability labels

These are findings from the Agro-Nutri Monitor, which Wageningen University & Research has conducted for the fifth time on behalf of the Netherlands Authority for Consumers and Markets (ACM). The study tracks developments in prices and costs for conventional, organic and other sustainable products.

"Organic farmers often make a loss if you also take into account that they should receive a return for their labour and entrepreneurship," says researcher Frank Bunte. This does not mean that organic farmers have no income at all, he explains, but they do earn less than conventional farmers.

Organic farmers do receive a higher price for their products, but on average this is not enough to fully cover their production costs. These costs are higher because organic farms are often smaller and face a greater risk of crop failure because they cannot use chemical pesticides. Organic livestock farmers also face higher costs because animals are given organic feed and more space in the barn.

Wholesalers and food processors also generally earn less from organic products than from conventional products. One reason is the smaller volumes involved in processing and distribution. Nor is organic food expensive because supermarkets make large profits on it, says researcher Anne-To Vervelde. "Supermarkets stock organic products to serve a particular group of customers, to work towards their own organic targets or to strengthen their sustainable image. But supermarkets also sometimes make a loss on organic products." The monitor examined six products, but provides a broad picture of the sector as a whole.

Organic certification is only one way in which agriculture and horticulture can become more sustainable. There are also many other sustainability labels. These usually place less stringent requirements on farmers’ production methods than organic standards, while still being more sustainable than conventional production.

Examples include On the way to PlanetProof, Beter Leven and Beter voor Natuur & Boer. Economically, products carrying these labels perform considerably better. They are much cheaper in shops than organic products, while farmers still retain a larger share of the value.

One important reason is that the production and processing of products carrying these labels take place on a much larger scale, making them more efficient. The labels were developed at the initiative of civil society organisations such as the Dutch Society for the Protection of Animals, Stichting Milieukeur, or supermarkets. "Farmers, civil society organisations and supermarkets jointly determine the requirements that farmers have to meet," Bunte explains, "through continuous consultation, in line with the Dutch polder model."

To make organic farming more profitable, organic farms would need to operate on a larger scale. "But there is often little land available for farms to expand," says Bunte, "and growth does not always fit well with the emphasis on circularity in organic farming."

Another way to encourage organic farming would be to stimulate consumer demand. "Supermarkets are also trying to do this themselves, for example by offering discounts on organic products or by selling only the organic version of a particular product. Even so, the group of consumers who see added value in organic products remains small," says Anne-To Vervelde. The higher price is an important barrier. For the products examined in the monitor, organic products were 20 to 25% more expensive than conventional alternatives. According to Vervelde, growth in organic farming will therefore not emerge from market forces alone.

If demand is limited, would it not make sense for there to be fewer organic farmers? "That would be the usual market response," says Bunte. "But many organic farmers choose this type of farming for idealistic reasons, rather than because they expect to earn a lot of money from it."

The researchers also asked conventional farmers about their views on making agriculture more sustainable. Many see switching to organic production as a major risk because of the substantial investment required to convert their farm. Other sustainability labels are also seen as a risk, because farmers are not always certain whether they will receive a higher price for meeting the requirements of a particular label.

The researchers believe that Dutch agriculture and horticulture could become more sustainable by gradually tightening the standards of widely used sustainability labels such as On the way to PlanetProof, Beter Leven and Beter voor Natuur & Boer.

This gradual tightening of standards is already under way, says Bunte, as part of the ongoing consultation between supermarkets, civil society organisations and farmers. At the same time, Vervelde adds, it is important to strengthen and promote the organic sector. "One does not have to exclude the other."