The last decade has brought great attention to farming methods and the benefits of organic products. The organic food market in North America is sized upwards of US$50 billion, driven by the health preoccupations of agricultural workers, environmentally conscious consumers, and the potentially harmful effects of chemically grown organisms. This trend has led many farmers in North America to consider the possibility of transition; however, there are several conditions and considerations to be taken when transitioning to organic farming.
Conventional large-scale farming in North America is dominated by row crops, agricultural commodities, the use of chemical agents (i.e. pesticides & fertilizers), and genetically modified organisms. These agricultural operations are typically vast in size. Likewise, they incur substantial costs because of expensive inputs, such as chemical products as well as bioengineered seeds and plants. However, the high yields and quick outputs of these operations make for favourable economies of scale. Thus, non-organic operations function in a production line style and sell huge amounts of grain or similar commodities. The downside to this model of farming and agriculture are the large amounts of competition on the supply side and, consequently, the instability of agricultural commodity prices.
Organic farming has several key characteristics that define it. These characteristics include the use of natural fertilizers (such as manure or organic waste), the non-use of chemical agents, and the use of non-manipulated seeds or plants. Organic farming tends to produce lower yields and to require longer cultivation periods because of the absence of chemical fertilizers and pesticides; however, this is not always the case. Amongst the advantages of organic farming are the higher prices at which the products are sold as well as the absence of onerous costs in relation to chemical and biological seeds or crop enhancers. Furthermore, one of the main advantages of organic farming is that its products tend to occupy niches within the food and agriculture market. Unlike commodities, which the worldwide agricultural complex cultivates seasonally in huge quantities, organic farming produces specific products such as avocados, citrus, and fruits, which are catered to middle and upper class clients. Organic prices tend to be lucrative as well as stable because organic production is highly fractionalized and its market is growing.
Transitioning into Organic
Given the scenario presented above and what seems to be the lucrative promise of organic crops in the years to come, many in the agriculture industry have transitioned or are considering transitioning into organic farming. In order to access the organic agriculture market, products must be certified organic by national agencies and regulation boards in their respective countries. In the United States, the Department of Agriculture has a series of standards to which farmers and processors must adhere in order to qualify as organic. Therefore, the process for a farmland operation to transition from non-organic to certified organic takes time as well as structural changes. In the case of the United States and Canada, the transformation of an agricultural operation requires a minimum of three years (36 months) land detox period as well as site inspections by regulatory authorities. The transition period is coupled with the abandonment of the use of chemical and biological agents within the operation.
Because such a transition can have a substantial effect on the short-term profitability of the operation, the option exists to move into organic farming by phasing in plots of land. However, there are strict rules as to how crops must be separated in order to prevent contamination. For example, buffer zones between organic and non-organic crops must be at least eight metres wide and the products from the buffer zones cannot be classified organic. Similarly, processing of organic and non-organic products must be done in separate facilities.
The critical differences that exist between organic and non-organic operations have led to the outlawing of hybrid farms in several jurisdictions worldwide. Similarly, the respective market outlooks and dynamics of organic versus non-organic crops are substantially different. Therefore, investors and farmers seeking to transition operations into the certified organic market should inform themselves and practice due diligence as to the requirements of organic operations.