Organic agriculture is rapidly gaining in importance within the European Union, even though it still accounts for a small proportion of farm production. Citrus, in particular, is following this pattern. Thus, in Spain (the leading citrus producer in the EU), the amount of land devoted to organic farming accounts for scarcely 1 percent of the total, but has shown significant growth over recent years. There has been further expansion of so-called integrated farming which, without attaining the environmental performance level required for organic farming, also involves the incorporation of more environmentally friendly growing methods and, in some instances, is the precursor to organic farming.
Markets for organic products in the EU do present certain paradoxes and uncertainties. Thus, whereas it seems clear that there is a growing interest in this type of product on the part of consumers, with prices higher than those for the same products produced by conventional farming, it is also apparent that a significant proportion of organic production is marketed as conventional, with this proportion reaching 10 percent in the case of fruits in general (Michelsen J., et al, 1999). The basic reason is that since these products are relatively new to the market, and have a small presence, they do not have good distribution channels. Furthermore, in many EU countries, the major distribution chains are not showing great interest in them.
It should be noted, however, that the new Agricultural Policy implemented under the "Agenda 2000" action programme more than ever implies a greater degree of integration with Environmental Policy. This leads us to suppose that this new form of agriculture enjoys strong institutional support within the framework of the European Community's new Agricultural Policy.
Economic comparison of organic and conventional citrus farming should be performed in light of the fact that citrus is a perennial crop, which means that the most appropriate methodology must take into account the entire useful life of the grove, as well as different market scenarios.
Thus, the methodology used is the so-called economic/financial evaluation, which considers the value of money over time (NCV- IRR analysis), regardless of an initial approximation of its viability through an estimate of growing costs.
Production costs highlight the need for a higher price for the organic product, since the costs are greater (27.9 percent for oranges and 25.9 percent for mandarins) and the yields are lower, especially during the conversion period (19.4 percent for oranges and 19.6 percent for mandarins).
Evaluation of profitability according to the methodology used and the assumptions and the hypotheses established, both the general assumptions, which are habitually used for this type of analysis (Romero C., 1998), and specific assumptions of a technical nature, which reflect the character, or typology of the farms, as well as the market hypotheses (level of prices attainable), reveal higher profitability in conventional farming than in organic farming, as well as the greater sensitivity of organic orange growing to variations in market prices.
Due to the difficulty in predicting the evolution of markets and, in particular, that of the prices that organic products might reach, we had to simulate different price scenarios that would allow us to discern under what conditions the estimated profitability for organic farming would be higher or, at least, comparable.
This was performed under the assumption of a saturated global citrus market, that is, a supply level that matches existing demand (saturated markets hypothesis). Results indicate that only in a context of strong and very strong preference - that is, with prices for organic citrus 30 percent and 40 percent higher than for conventional citrus- can organic farming show higher profitability. In the case of the hypothesis of simple preference (initial hypothesis), which is the present situation, the profitability rates are, as we have already mentioned, in favour of conventional farming. Those differences are, however, small (2.26 percentage points for oranges, and scarcely more than 1 percentage point for mandarins), and that is why many farmers are contemplating this form of production, presuming a change in markets.
If the institutional framework becomes more favourable, and is reflected in the implementation of an agricultural policy that supports these growing systems, if distribution channels are developed for this type of product, and if interest among major operators increases, it seems quite clear that the trend toward this form of production, which is already growing, will grow further. If the price differential becomes somewhat higher than at present, organic citrus will attain higher profitability rates that will make this growth possible.
Organic citrus growing will gain ground over the coming years, although how fast it grows will depend on the evolution of the market, and the practical impact that institutional support has on the citrus-growing industry. In the short term, however, it does not seem that a major shift toward organic farming is justified.