Indian Institute of Management, Ahmedabad, Working Paper No. 2010-04-03, April Charyulu, D. Kumara and Subho Biswas (2010)

A comparison of the economics and efficiency of organic and conventional farming for four crops in India throws light on the nature of institutional support required to expand organic cultivation.

Organic farming has been envisaged to be a solution for resource scarcity and environmental contradictions that input intensive conventional agriculture often runs into. With minimal use of chemical inputs, organic methods of cultivation help in the conservation of water and soil nutrients. In the case of food products, the quality of the end products are also held to superior in case of organically produced items with negligible use of chemicals. It is being increasingly recognized that organic farming has significant benefits in terms of environmental problems, conservation of non-renewable resources and food quality.

The challenge before the expansion of organic farming is to make this cultivation method economically sustainable. The lower yields associated with organic cultivation relative to the more prevalent conventional agriculture prevents farmers from readily shifting to organic farming. A premium price, which compensates for the lower yields, is required for organic farming to be a viable enterprise. This restricts organic products to smaller niche markets and is a barrier to organic cultivation practices being adopted on a larger scale. Also, organic cultivation is labour-intensive compared to conventional techniques. While in economies with high labour cost, this can further reduce the viability of organic farming, in economies with higher unemployment and lower agricultural wages, this can be a more suitable form of cultivation practice from a developmental point of view.

According to the FiBL survey, 2008 conducted by the Research Institute of Organic Agriculture, Switzerland, around 30.4 million hectares are managed organically by more than 7,00,000 farms in 2006. The largest proportion of organic land is found in Oceania (42 percent), followed by Europe (24 per cent) and Latin America (16 per cent). India with her existing bio-diversity has quite some potential to adopt organic farming. By 2010, there was about 2.8 million hectares of certified organic land, of which one million hectares is under cultivation and the rest under forests.

Charyulu and Biswas examine the economic viability and efficiency of organic farming presently in India. The study is based on farm production data from the four provinces- Punjab, Uttar Pradesh, Gujarat and Maharashtra. A field survey was conducted in 2009-10 among 120 farmer households, 15 organic and 15 inorganic farmers in each province. The crops covered are paddy, wheat, cotton and sugarcane. The authors also conduct a Data Envelope Analysis (DEA) analysis using per acre figures of gross value of output and four input costs (seeds, fertilizers, pesticides and inter-culture to measure the efficiency of organic and conventional farming for the sample.

The findings reveal that for paddy cultivation, the organic method is less profitable than the conventional paddy farming. The net returns per acre were less for organic paddy by 15 percent in Punjab and 33 percent in Uttar Pradesh than that for conventional input-intensive paddy cultivation. In Punjab, the cost of cultivation for organic farming was higher than its conventional counterpart though it was compensated to some extent by premium prices for organic paddy. In contrast, the organic paddy cultivation in Uttar Pradesh had a lower unit cost of cultivation but the lack of premium prices rendered it less attractive than conventional cultivation.

In both cases, the physical yield was lower for organic farming. In contrast, wheat cultivation is more remunerative when done organically than using conventional methods. In both Punjab and Uttar Pradesh, the net returns per acre were higher for organic farming, mainly due to the much higher output prices that organic wheat fetched in the markets.

The study of organic cotton cultivation in Punjab and Gujarat yielded different results. The cost of cultivation per acre for organic cotton was as much as 56 percent lower in Punjab, while the physical yields were lower by 27 percent.

However, lack of premium prices for organic cotton in this province meant that the net returns were still lower for organic than conventional grown cotton by 10 percent. However, in Gujarat, organic cotton fetched 27 percent higher net returns than conventional cotton owing to both lower costs and premium output prices.

Sugarcane was the only crop for which organic farming seemed to be more profitable even in the absence of premium prices. The yields for organic sugarcane were higher than conventional sugarcane in Uttar Pradesh while they were at par in Maharashtra. Cost of cultivation was lower for organic sugarcane in both provinces.

It was observed that usually organic farming of the studied crops revealed lower plant protection costs and higher weeding costs compared to conventional methods of cultivation. The efficiency analysis, however, shows that except for organic cotton cultivation in Punjab, all organic crops had a lower efficiency than their conventionally cultivated counterparts. The organic farmers were generally found to function well within their production possibility frontiers.

The study noted that except for sugarcane, all other organic crops were crucially dependent on premium prices for their viability. Government intervention for better marketing facilities for organic crops and assurance of premium prices for staple organic food crops are required to expand cultivated area under organic crops. It was concluded that specific input subsidies and more research in organic cultivation that can substantially raise yields closer to the levels of conventionally grown crops can go a long way in making organic farming sustainable and a viable option for farmers in India.