Values Chains, Organic Certification, and Organic Markets

1. Values Chains, Organic Certification, and Organic Markets Douglas H. Constance Sam Houston State University 20th Anniversary of SARE Kansas City, Missouri March 25th. 2008

2. Four Parts • Values Chains • Organics: The Origins • Organics: The Change • Organics: What to do? • Some evidence from Texas

3. Commodity/Value Chains • “Commodity Chains in the World Economy Prior to 1800” , Hopkins and Wallerstein (1986) • “Commodity System Analysis: An Approach to the Sociology of Agriculture”, Friedland (1984). • “Commodity Chains and Global Capitalism”, Gereffi and Korzeniewicz (1994) • “The Governance of Global Value Chains”, Gereffi et al. (2004)

4. Commodity Chains to Value Chains: • Commodity Chains focus on tracing the network of labor and production processes whose end result is a finished commodity. • Value Chains focus on the location along the chain where value is extracted. • Where is the value extracted? • Who makes the money? • Are chains “seller” or “buyer” driven?

5. Organics: The Origins • Lady Balfour and Sir Albert Howard in UK • Rodale in the US • Hippies in California – 1960s/70s • Decentralized: scale specific • Philosophical: agro-ecological • Holistic: crops/livestock cycle • “Deep Organics” • Characteristics of the value chain??? • Who drives the chain?

6. Organics: The Change - California • California Certified Organic Farmers: 1973 • California Organic Foods Act: 1990 • The “list” - acceptable materials • Third party certifiers • Model for other states/national programs • Entry by California agribusiness • Characteristics of the value chain?? • Who drives the chain?

7. Organics: The Change - US • Organic Standards Protection Act: 1990 • National Organic Standards Board • Proposed Rule: The BIG 3 – 1997 • Allowable inputs versus agro-ecology • 2001 USDA National Organic Program • No government transition subsidies • Final Rule: 2002 • purposefully framed “certified organic” as a market label based on consumer preference with no claims to health benefits or environmental superiority

8. Organics: The Change • Certified organic land doubles between 1990 and 2002, then again by 2005. • Rate of certified organic land up rapidly, but rate of new certified operations slows. • Markets grow at average of 20% through the 1990s and early 2000s. • Entry by national/global agribusiness. • Characteristic of the value chain? • Who drives the chain?

9. Table 1: U.S. Certified Organic Crop Acreage, Livestock Numbers, and Farm Operations:1992 – 2005 (in thousands) *number does not include subcontracted organic farm operations. Source: USDA/ ERS (2007), Table 2: based on information from USDA-accredited State and private organic certifiers.

11. Organics: Global Market Info: • Market grew 13.6% in 2006 to $36.7B • Forecast to grow to $67.1B in 2011 • Up 83% since 2006 • Fruits/Veges most lucrative sector • Account for 38.5% of market value • Largest consumer market is the Americas • Accounts for 49.7% of market value • Major food retailers entering the sales market: Kroger, WalMart, Tesco, Carrefor • Characteristics of the value chain?

12. Organics: Global Info. • In North, demand often > than supply. • North American companies “scouring the globe” for organic ingredients. • Beans/seeds/nuts – China/Turkey/Brazil • Herbs/spices – India/Paraguay/ Pakistan. • Fruits/vegetables - Africa/Asia • Meats - Latin America/Australasia

13. Organics: Global Info. • Demand mostly in the North • Supply growing fastest in South – exports • Triple digit growth of organic land in South from 2000-06 versus double digit in North • Organic acres up > 700% in China 02-06. • Most organic acres in Australia/Argentina – grazing land (de facto organic). • Government supported/subsidized • Who is “driving” the value chain?

14. Some Agri-Sociology • With organic standards/certification you get entry to capture the organic price premium. • Early adopters capture the premium • Conventionalization • Appropriationism: agricultural processes move off the farm- upstream/ downstream • Substitutionism: post-production activities – value added, processing, retailing • Bifurcation • Certified: indirect markets (Organic Lite?) • Non- Certified: direct markets (Deep Organic?)

15. Some More Agri-Sociology • Entry pushes up supply, down costs, and lowers prices (and price premium). • Transaction Costs • more efficient to deal with fewer large firms than lots of smaller firms. • Global Sourcing • obtain factors of production globally. • Characteristics of the value chain? • Who drives the chain? Buyer or seller?

16. Organics: What to do? • What kind of operation competes/survives in this environment? • Indirect markets? • Direct markets? • Which are more /less sustainable? • Which are more/less risky? • What about certification?

17. A Study from Texas: Certified and Non-Certified Organic Producers • Joint project: 2004-2005 • Sam Houston State University • Texas Organic Farmers and Gardeners Assoc. • Texas Department of Agriculture • Texas A&M University • List from TDA (152) and TOFGA (210) • Compare 53 certified to 32 non-certified • Southern SARE funded

18. General Hypotheses • Certified and Non-Certified producers will be different • Demographically • Structurally • Attitudinally • Certified will be more like “conventional producers” – “organic lite” • Non-Certified will be more like “alternative producers” – “deep organic”

19. Demographics • Age • Education* • Race/Ethnicity • Gender

20. Age

21. Gender

22. Education*

23. Summary • The only significant variable was education.

24. Structural • Direct or indirect markets. • Size; sales; household dependence • Years farming; years farming organically • Tenure: own/lease • Farm operation: full/part time • Hired labor: full/part time • Organic origins: begin/transition? • Plans for the future? • Problems with distance to organic markets?

25. Table 2. Markets of Organic Products : *p<.1; **: p<.05; ***: p<.01

26. Size of Operation in Acres – 2003

27. Gross Organic Farming Income in Thousands – 2003*~

28. Percentage of Household Income from Organic Sales – 2003*~

29. Years Farming *~

30. Years Farming Organically *~

31. Own or Lease Organic Farming Land

32. Full or Part-Time Farming*

33. Non-Family Member Working Full Time

34. Non-Family Member Working Part Time

35. “Transition to” or “Began as” Organic

36. Distance to Available Organic Markets~

37. The Future: Expand, Same, Decrease, or Close

38. Summary: Structural Issues • Cert > indirect; NonCert>direct markets* • Gross organic farming income – Cert>NonCert* • Percentage of household income – Cert>NonCert* • Years farming – Cert>NonCert* • Years farming organically – Cert>NonCert* • Certs more likely to be full time. * • Distance to markets problem- NonCert>Cert* • Hired labor – no sig. diff. • Organic origins. – no sig. diff. • Future plans – no sig. diff.

39. Attitudinal: Reasons for Farming Organically • Organic Price Premiums* • Growing Consumer Demand* • To Reduce Inputs Costs • Maintain Farm Economic Sustainability • Quality of Organic Products Grown • Chemical Avoidance for Environment • Chemical Avoidance for Personal Health

40. Attitudinal: Reasons for Farming Organically (cont) • Land Stewardship; Ecological Sustainability • Response to Chemical Regulation* • Philosophical; Spiritual; Ethical • Community Values; Tradition; Quality of Life • Challenging; Interesting; Intellectually Appealing • Animal Welfare* • Economic Support on Fewer Acres*

41. Organic Price Premiums *~

42. Growing Consumer Demand *

43. Provides Economic Support on Fewer Acres*~

44. To Reduce Input Costs

45. Maintain Farm Economic Sustainability

46. Quality of Organically Grown Products

47. Land Stewardship; Ecological Sustainability

48. Chemical Avoidance for Environmental Health

49. Chemical Avoidance for Family/Worker Health

50. Philosophical; Spiritual; Ethical Reasons