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The Economic Sense of Organic Food

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Excerpted from The Ecology of Pizza
By Sandra Steingraber, PhD

I have been involved with organic food ever since my dad handed me a cash box and stationed me behind a card table at the end of the driveway, next to a giant sign that read ORGANIC TOMATOES 25 CENTS A POUND.  According to the photo in our family album, the year was 1970.  I would have been ten. 

The marketing plan worked.  People stopped to ask what in the world organic meant.  I then explained, with smarty-pants authority, that it was a way of growing food that does not use any artificial pesticides or fertilizers but instead relies on healthy soil and biological controls to keep weeds, bugs, and diseases away.2  Next, I offered commentary on the use of lady bugs to control aphids, the art of compost-making, and the importance of mulch.  At this point, most of my customers had already slapped their quarters on the table and were loading vegetables into their backseats.  I do remember one man listening to the whole speech and then asking, "Oh, yeah?  And how do I know they're really organic?"  My little sister had the answer to that one:  "Because our dad says so!" 

Our father taught business and consumer education at the local high school; he used Rachel Carson's Silent Spring as a textbook.  The tomatoes were from his own garden; my sister and I got to keep the proceeds. 

Since then, organic foods have penetrated both the marketplace and the consciousness of U.S. consumers in ways that would have amazed my father.  Sales of organic food have increased one-hundred fold since 1980 and are predicted to hit $20 billion by 2005.  With an average annual growth rate of 20 percent per year for the last decade, organic food production is now the fastest growing sector of U.S. agriculture.3  With the USDA's organic certification program now in place, buyers no longer have to rely on the personal reassurances of the grower to guarantee chemical-free methods of production.  Says a recent issue of American Banker magazine in a clear message to lending institutions, "Organic farming is establishing itself as the bright spot in an otherwise bleak picture of U.S. agriculture."4

The economic statistics for Europe are even more jaw-dropping.  Consider Italy. There, organic fruit and vegetable sales more than doubled between 1998 and 2000.  During those same two years, the amount of Italian acreage under organic cultivation jumped by 25 percent.  Given the high demand in Europe and elsewhere, the Food and Agriculture Organization of the United Nations now officially recommends organic farming to developing nations as a means to increase export earnings and decrease domestic hunger.5

Meanwhile, biological investigations of organic farming practices have helped dispel some commonly held misconceptions about it.  One is that organic farms are, however charming, unproductive.  Let's be clear:  organic farming is not an exercise in nostalgia.  Yields on contemporary organic farms are far higher than they were on farms of the 1950s before pesticides became universally available.6  Moreover, according to a Swiss study that was twenty-one years in the making, organic farms are capable of producing yields nearly on par with those of conventional farms while burning up considerably less energy and natural resources to do so.  They also leave soils healthier for future generations.  The authors of this study found that soils under organic cultivation have more fungi to help plants take in water, more microbes to help plants absorb nutrients, and more earthworms to assist in making those nutrients available in the first place.  Published in 2002, the study is considered the most comprehensive study to date that compares conventional and organic farming systems.7  

Another myth is that organic farms are overrun by insects.  Again, the data show otherwise.  A recent survey of commercial tomato farms in California, for example, found no increase in pests on farms where pesticides had been withdrawn.  Indeed, organic farms had about the same numbers of plant-eating bugs as did the conventional farms.  What organic farms did have in greater abundance were insects that ate the plant-eating bugs.  These so-called natural enemies-of which my father's precious ladybugs are one-apparently took the place of insecticides in controlling pest outbreaks, as levels of pest damage in conventional and organic tomatoes were virtually identical.  Expressing surprise, the authors concluded, "At least for tomato in the Sacramento Valley, commercial production using organic management techniques is both practical and beneficial."8

A third belief, widely held among consumers, is that organic food is considerably more expensive than conventionally grown food.  This is not a misperception.  This is pretty much the truth.  At the cash register, you pay premium prices for organic food.  And, given that organic farmers enjoy comparable yields while using fewer natural resources, why should that be?
The answer to this simple question turns out to be fairly complicated.  Here is the short version. 

In some cases, organic prices are higher because of retail mark-ups.  Organic farms are often smaller, more local, or more seasonal.  Supermarkets have to purchase their goods from more suppliers who provide less predictable quantities.  This takes more work.  By contrast, conventional growers can keep prices low by sheer volume.  As organic farming becomes ever more popular, supplies should become less variable and retail prices more competitive.9

In some cases, organic food provides higher profit margins for those who produce it.10  This is almost certainly the case for dairy farmers in upstate New York, which is where I live now.  In June 2003, farmers producing conventional milk received $11 for every hundred pounds.  This was the lowest price in thirty years.  Organic milk fetched $20.  Not surprisingly, the dairy farmers I know who have switched to organic all say they earn more money now.  Similarly, organic dairies in California net 60 percent more income than conventional dairies.11  Increased farm income is, of course, not a bad thing.  It provides jobs, prevents bankruptcies and foreclosures, and strengthens the social fabric of rural communities.

But the principal reason that organic food costs more than conventional food is that organic food costs more to produce.  By and large, organic farming relies more on labor and less on chemicals, and, in the United States, the former costs more than the latter.12 

Except that pesticides are not as cheap as they appear.  And here lies the reason why organic food is actually a bargain.  The price of organic food reflects, more or less, the full costs of making it.  The price of chemically grown food does not.  Among the costs not incorporated into the bar codes that beep their way through the check-out lane:  fertilizer-contaminated groundwater, insecticide-contaminated fish, herbicide-contaminated rain, dead honeybees, poisoned wildlife, deformed frogs, eroded soil, toxic algal blooms, ozone depletion, and antibiotic resistance.  These are what economists call "externalities"-the costs of an activity that are borne by others.  The bad thing about externalities is that they lead to market outcomes that are costly to society even though privately profitable.13 

The almost universal presence of farm chemicals in U.S. rivers and streams is a classic example.  The 130 different pesticides found in groundwater are another.14  Farmers do not intend to harm our drinking water by using it as a receptacle for their topsoil, fertilizers, and weed killers.  But, because property rights to the environment are not defined, farmers are not required to include in their expense sheets the economic consequences of erosion, leaching, and drift.15  Instead, the cost of filtering silt and poison out of tap water is passed along to the water utilities.  And then ultimately to anyone who pays a water bill.

What do all the externalities of conventionally grown food add up to?  What is the final price tag?  The answer to this simple question turns out to be more than $10 billion a year. 

This is the sum tallied by Cornell University professor David Pimentel in a monumental paper first published in 1992 and recently updated.16  In it, Pimentel reports that U.S. farmers spend about $10 billion on pesticides each year to protect about $40 billion of food crops.  For them, this investment is generally profitable.  However, as revealed by Pimentel's accounting, the external costs of this pesticide use amounts to another $10 billion.  This is the price tag passed along to society at large.  Included in Pimentel's exhaustive inventory are costs of lost work caused by poisonings of farm workers, medical treatments for pesticide-induced cancers, and the maintenance of complex regulatory systems to monitor pesticide residues in everything from applesauce to lake sediments. 

So, only half of the total costs of using pesticides to grow conventional food are included in the price of the food itself.