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ACM: food price monitor offers a first insight into pricing and obstacles for organic production

09-10-2020

The costs that farmers and growers incur for producing organic agricultural products are covered by the revenues in five out of six examined cases. Only organic dairy farmers have, on average, made a loss. Farmers and growers experience several obstacles when switching to organic production. This was revealed by from the analysis made by the Netherlands Authority for Consumers and Markets (ACM) based on the study carried out by Wageningen Economic Research (WR) into the price trends of six regular and organic products in the period of 2017-2018. The six products in question are milk, onions, tomatoes, white cabbage/sauerkraut, pears, and pork.

Martijn Snoep, Chairman of the Board of ACM, comments: ‘The Dutch Minister of Agriculture, Nature and Food Quality (LNV) wishes to know whether the higher production costs associated with organic production are covered by higher revenues. In five out of six of the examined products, that seems to be the case. The study reveals that farmers and growers, who have not yet switched to organic production, face uncertainties regarding the switch to organic production, for example, uncertainty over the switching costs or changing production requirements set by certification labels. Furthermore, demand is quite little at the moment, also internationally, which acts as an economic obstacle to a large-scale transition to a more sustainable production.’

Organic farmers and growers, on average, recover their costs

The Agro-Nutri Monitor 2020: Monitor of foodstuffs’ prices, and analysis of obstacles to transition to sustainable production (in Dutch: “Agro-Nutri Monitor 2020: Monitor prijsvorming voedingsmiddelen en analyse belemmeringen voor verduurzaming”) has examined, for the period 2017-2018, whether farmers and growers that have switched to organic production are able to recover their production costs. That has been the case for five organic products: onions, tomatoes, white cabbage/sauerkraut, pears, and pork. In that same period, organic farmers and growers had, on average, a higher net profit margin than their regular colleagues. In the period that was studied, regular and organic dairy farmers that contribute significantly to the agricultural production in the Netherlands made, on average, a loss. In the regular sector, pork farmers also made a loss in that period.

Farmers and growers face obstacles when switching to sustainable production

Farmers and growers experience various obstacles when switching to sustainable production. Obstacles that are often mentioned include the uncertainty over production requirements (and the constant changes therein) for sustainable production, as well as the switching costs. In addition, it takes two to three years before a farmer that makes the switch is allowed to sell their products as ‘organic’, while incurring higher costs until then. Furthermore, farmers and growers also mention the decrease in yields (per hectare) and the limited size of potential markets because of limited demand for organic products, both in the Netherlands as well as internationally.

Price trends in the food chain

This price monitor is the beginning of a multi-year study into the agricultural sector. The Minister has asked ACM to publish this monitor every year for the next few years in order to be able to keep a close watch on trends and developments. Representatives of various sectors will also be involved in this study.

The price trends in the chain from ‘farm to fork’ of these six products give a clear picture of the price dynamics in the agricultural and horticultural sector, but these results cannot be applied directly to other products or to the agricultural sector as a whole. The price trends of some agricultural products heavily depend on the weather. Also, the revenues of the products strongly rely on demand in international markets. A considerable share of food that is produced in the Netherlands is exported.

ACM and the agricultural sector

ACM keeps a close watch on agricultural markets in order to ensure that they work well now and in the future. Over the next few years, this price monitor will offer a clear picture of how these markets function, and what obstacles to a more sustainable future exist. Furthermore, ACM is conducting an investigation into price-fixing agreements among traders regarding the purchasing of agricultural products. And, in early-2021, consumers and businesses will be able to contact an ACM team dedicated to unfair commercial practices. Finally, ACM recently published its Guidelines regarding sustainability agreements, which can also be used in the agricultural sector, in order to promote sustainability.

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