News Agro-Nutri Monitor
How profitable is organic production?
The costs incurred by agricultural entrepreneurs for the production of organic products are covered in 5 out of 6 cases by the yield, according to the Agro-Nutri Monitor 2020 of the Authority for Consumers & Markets (ACM) and Wageningen Economic Research. Only organic dairy farmers suffer on average loss. Sector parties are not impressed by this report. According to them, it says too little about reality.
The monitor looks at the period 2017-2018 and must demonstrate whether entrepreneurs who have made the switch can recoup their production costs. This was the case for the 5 products onion, tomatoes, white cabbage/sauerkraut, pears and pork. In the period mentioned, these farmers had on average a higher net profit margin than their regular colleagues. In contrast, dairy farmers suffered losses on average.
According to the researchers, this loss is mainly due to the fact that prices in dairy farming were relatively low in the period 2017-2018. The expansion of milk production in the years before 2016 and disappointing demand for dairy put prices under pressure. Dairy farmers had relatively low profit margins and low incomes during this period.
Barriers to the switch
The research also shows that farmers experience several obstacles when switching to sustainable production. For example, they denounce the uncertainty about (ever-changing) production requirements and the costs of the switch. In dairy farming, this concerns, among other things, requirements for land (use). In addition, it takes at least 2 to 3 years before a converted farmer is allowed to sell his products as organic. In the meantime, they do have higher costs. Finally, farmers also mention the decrease in the yield per hectare and the limited sales opportunities as a result of a limited demand for organic products, both nationally and internationally.
On the other hand, an important obstacle lies in the consumer's willingness to pay. The market for organic products is small and the minimal willingness of consumers to pay ensures that supermarkets achieve a lower average profit margin on these products. In short: "The social value of sustainable production is still not sufficiently seen as private value for which people are willing to pay", say the researchers. "In addition, the negative effects of conventional production on the environment, for example, are not all included in the price, which increases the price difference."
Criticism from sector parties
Although sector parties if LTO Nederland and the POV are happy with the ministry's effort to make the agricultural and horticultural markets more transparent, they note that the monitor still says too little about reality. According to them, the results are mainly descriptive, without an analysis of the causes. According to them, the influence of international markets is neglected too much, while more than 90% of onions and tomatoes are exported. In addition, the monitor mainly looks at fresh production, while 55% of Dutch milk is processed into cheese.
The data supplied also raise questions among the sector parties. "The data comes from the companies, but the margins depend on the costs these companies declare themselves, without an accountant's statement," the advocates say. It is about group averages and not about costs per product. "It is also not clear how many companies charge for cooling or transport. This makes it difficult to draw firm conclusions from a paper reality. The diversity between the companies is great. Apples and pears are therefore often compared." According to the parties, more can be said about prices in relation to income. In 1960 a Dutch person spent an average of 30% of his income on food and drinks, now it is only 12%.
Repetition of research
The Agro-Nutri Monitor is now being carried out every year at the request of Minister Schouten in order to keep a close eye on developments in the sector. In this way, a picture should be created of how the markets work and what obstacles there are to more sustainable production. In addition, there is an urgent request from the sector parties to involve the primary sector more emphatically in the performance of the study in 2021 and not just in the presentation of the preliminary results.
In addition, ACM is investigating possible price agreements between traders regarding the purchase of agricultural products, although the Agro-Nutri Monitor mentions "little unfair trading practices". The sector parties do not believe that this conclusion can be drawn so easily, because the greatest problems arise in the relationship between wholesalers/processors/exporters and retail. The farmers often do not sit down at the table there, but they do experience the consequences. In order to investigate this further, ACM will open the 'reporting unfair commercial practices' desk next year.
The full report can be viewed here.
Kimberly Baker
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