Increased interest in environmental issues has sparked a significant movement in favour of so-called organic or ecological farming. This is because organic farming involves several environmentally friendly growing methods and also responds more effectively to consumers' growing interest in dietary health.
Furthermore, the European Union's new Agricultural Policy, which is being implemented under its "Agenda 2000" action programme, places renewed emphasis on the need for environmentally friendly forms of agriculture as a key component of efforts to support the agricultural sector.
Consequently, agricultural producers in general, and in the European Union in particular, have been demonstrating an interest in such farming systems, on the grounds that such systems meet the demands of modern society more effectively and are also likely to receive strong institutional support.
Compared with the requirements of conventional systems, however, those of organic farming systems are such that the process of conversion to organic farming has not been simple. Nor has the process been helped by the lack of indicators concerning the market for such products.
The term Organic Agriculture, as defined by IFOAM (International Federation of Organic Agriculture Movements) refers to the creation of an ecological management system, which includes a transition/conversion period, and which meets the definition of a sustainable agro-ecosystem. Once it has been determined that the system's methods meet regulatory requirements, they must be certified as organic.
Spain is not among those countries of the European Union where this form of agriculture has seen its biggest growth. After all, the surface area defined as organic represents only around 1 percent of all agricultural land. And yet, organic methods are experiencing major growth. The amount of land currently certified as undergoing conversion to organic systems (conversion period of 18 months) now exceeds the amount of land already certified as being devoted to such systems (Table I).
Total land devoted to organic farming in Spain (Ha) in 1999
|Total land certified for organic farming||Total land certified as in transition to organic farming||Total land certified during First Year of Practice||Total land registered as devoted to organic farming|
|Total||117 856.22||124 286.93||110 021.08||352 164.23|
Source: Ministry of Agriculture, Fisheries and Food (MAPA), 2000.
Spain is the leading citrus grower in the Mediterranean Basin, having produced more than 6 million tonnes in 1999. More than 80 percent of citrus production is concentrated in the Valencia Region. The region has also seen growth in "organic agriculture," even though that growth is very minor, in relative terms, since organic agriculture account for less than 1 percent of total land (Ministry of Agriculture, Fisheries and Food (MAPA: Ministerio de Agricultura, Pesca y Alimentación), 2000). And yet, integrated farming systems already account for around 5 percent of total farmland, having developed their own regulations at the regional level. Such systems also have also brought advances in terms of environmental protection, since they employ more rational, less aggressive plant-protection methods, but without meeting the requirements of organic agriculture.1
It is reasonable to expect that over the next few years, the total surface area devoted to organic farming will increase significantly and that integrated citrus production will grow even more strongly if the economic results of these forms of farming are accompanied by prices that make conversion viable, or by an increase in public subsidies for environmentally friendly practices.
In this regard, organic agriculture has benefited from a regulatory framework defined by the European Union (Regulation (EC) No. 2078/1992), setting up an incentive system, co-funded by the European Agricultural Guidance and Guarantee Fund (EAGGF) and Member States. In the Autonomous Valencia Region, the proportion of Community funding has risen to 75 percent, with the remaining 25 percent of funds shared equally between the Ministry (at the national level) and the Department (at the level of the Autonomous Region). In the Valencia Region, the subsidy programme was developed under the Order of 22 April 1998, of the Department of Agriculture, Fisheries and Food (Annex III), and set a maximum citrus subsidy of 60 000 Pta./Ha, with a minimum growing surface of 0.5 Ha. Nevertheless, the subsidy amount was gradually reduced over the five years in which it was granted (Table II).
Proportion of aid granted for production of organic citrus
|Third to fifth years||60%|
Source: Official Journal, Autonomous Government of Valencia, 1998
The subsidy in question is rather a long way from the maximum sum that may be subsidized under the premium set out in the Community Regulation, and which, for citrus, is 1 000 ECU/Ha (166 386 Pta./Ha).
At present, by Order of 23 December 1999 (Annex III) of the Department of Agriculture, Fisheries and Food, no more requests are being invited for financial aid regarding the aforementioned agro-environmental programme, since European Council Regulation (EC) No. 1.257/1999, of 17 May 1999, on EAGGF assistance for rural development, repeals Regulation (CE) 2.078/1992, among others, preventing its application, with effect from 1 January 2000. Thus, until the new Rural Development Programme for the period 2000-2006 is approved, it will not be possible to establish regulations, either at the national level or the level of the autonomous region, regarding application of the aid prescribed for the use of organic production methods.
As with any other agricultural product, development of an organic agriculture system for citrus inevitably requires consideration of its economic viability. It should be noted that little research has thus far been done in this area.
The objective of the present report is to try to ascertain, to some degree, the economic and financial viability of organic growing systems, compared with conventional systems. The methodology employed must take into account the fact that these are perennial crops which, in virtually every case, are not new plantings, since, in accordance with the specifications, they are conversions from conventional to organic farming, which must conform to the so-called minimum conversion period (2 years for this growing system).
This requires dynamic financial evaluation methods which consider the value of money over time since, as mentioned above, these are economic activities with a time horizon of more than one year.
Our first concern will be to estimate the costs of organic farming compared with conventional farming. Our second step will then be to set up a scenario of anticipated yields and prices. In doing so, we shall refer to the data provided by the farms addressed in our study and also compare them against prices given by other market sources (Michelsen J., et al, 1999).
We shall also calculate viability indicators, once we have made the necessary general and specific assumptions. The indicators in question are Net Current Value (NCV), Internal Rate of Return (IRR) and Recovery Period (RP).
Lastly, our results will be subjected to sensitivity analysis, with a view to predicting the evolution of the aforementioned indicators under various price scenarios.
1 Decree 121/1995 of 19 June, of the Government of Valencia, on the assessment of agricultural products grown with (DOGV of 4 July 1995).
Order of 23 May 1997, of the Department of Agriculture, Fisheries and Food, on the regulation of products grown with integrated farming methods and the authorization standards of monitoring and certification agencies (DOGV of 4 June 1997).
Resolution of 31 July 1997, of the Director of Research, Technological Development, and Plant Health, establishing regulations for the integrated farming of citrus in the Valencia Region (DOGV 28 August 1997).