Organic Agriculture and Poverty Reduction in Asia: China and India Focus

Introduction and methodology

The primary goal of this report is to enable a better understanding of organic agriculture in Asia and to clarify how organics can serve or hinder small farmers and rural communities -- especially poor ones. The Office of Evaluation of the International Fund for Agricultural Development undertook this evaluation to determine the role of organics in development programs and under what circumstances they should be integrated into its future poverty reduction strategies.

Organic produce is a fast-growing USD 27 billion segment of the food industry and is increasingly drawing the attention of farmers, governments and development agencies. Organic farming as a systematized and certifiable approach to agriculture is a relatively new phenomenon. It is no surprise that its adoption faces some challenges among both farmers and the public sector. Policymakers tend to be polarized in their views of organic farming; they see it either as a very lucrative modern niche or as a traditional and perhaps backward approach used by the poorest farmers. This interesting dichotomy reflects the somewhat different experiences and approaches taken in different countries.

This study evaluates organic initiatives that are diverse in terms of: agro-ecological zones, product types, institutional structures, geographic areas and market orientation. Taking a market-oriented focus, the document also addresses key investment issues and the organizational forms of organic agriculture such as adoption of standards, certification, civil organizations, value-chains and marketing channels. It draws primarily from the work of nine researchers on 14 case studies in China and India, as well as reviews of the organic sector in several other countries and more than 100 related studies and documents. Some anecdotal evidence is included when it is consistently reported and credible – this is necessary due to the lack of baseline studies and useful measurements in many small farmer projects. India and China are the dominant focus countries since these two together host more than half of the world's farming households. The methodology and output were reviewed by an international team, organized in the evaluation's Core Learning Partnership. The final evaluation was critically reviewed by a five-member Scientific Committee and an International Advisory Panel (see Acknowledgments for details).

For the purposes of this evaluation, clear distinctions are made between the definitions of different farming methods. Briefly, Organic Farming is a certifiable farm management system (with controls and traceability) that is in harmony with the local environment using land husbandry techniques such as soil-conservation measures, crop rotation and the application of agronomic, biological and manual methods instead of synthetic inputs. Traditional Farming is often subsistence oriented using few or no purchased inputs. Conventional or Intensive Farming utilizes Green revolution methods designed to maximize profit, often by extracting maximum output using external purchased inputs, especially mineral fertilizers and synthetic agro-chemicals and irrigation to support production.

Organic context

In many countries, governments have initially adopted a position of benign neglect toward what is typically perceived as a marginal agricultural segment. However, estimates for India suggest that most of its farming community relies on traditional or organic methods. China recognized the economic and ecological benefits of organic agriculture at the early stages and its local and provincial governments invested in a number of successful export-oriented enterprises.

In many parts of Asia, conventional farming approaches have made considerable inroads using potent fertilizers, pesticides, and herbicides along with new hybrid varietals and irrigation. For many small farmers, especially those in sub-optimal or more remote areas, such conventional methods are less relevant and traditional farming methods have changed little from the centuries-old practices of their forebears. Organics may be especially relevant for them. Organic agriculture has seen two primary avenues of expansion: among the smaller farmers - often poor - who either chose to eschew or could not afford Green revolution approaches; and among the commercially oriented farmers, who perceived new market opportunities in certified organic products. Consequently, projects and policies designed to support organic or eco-friendly agriculture must respond to these distinctions.

Overview of markets and marketing

Global organic sales have achieved double-digit annual growth rates for more than a decade. The domestic organic market in China is valued at approximately USD 150 million retail; less than 1% of the total market. The value of exports has expanded from less than USD 1 million in the mid-1990s to about USD 142 million in 2003. Estimates for 2004 approach USD 200 million. In India organic development has —until very recently— focused predominantly on farmer welfare and localized benefits rather than market development. A number of organic products are sold informally but the domestic market for certified organics is no more than a couple million US dollars. India's 2003 organic exports are officially estimated at USD 15.5 million. China's certified Green Foods are one of the most successful eco-labeling programs in the world, because of their rate of growth in the past decade, their similarities to organics, and their sheer volume, and are well worth understanding since they set a precedent for organics. Annual Green Food sales should reach close to USD 12 billion in 2004, nearly matching the size of the world's largest organic sector: the USA.

The evaluation estimates that China has 600 000 - 700 000 hectares of certified organic land (all uses) in 2004 and 1 100 companies and farms are being certified. India's certified organic farming area has recently surged to 2.5 million ha (all uses) and 332 certifications have been issued in the past year. For both, these figures are coupled with a very dramatic rate of growth.

Characteristics of organic production and markets

The switch to organic farming from a traditional or rustic form of cultivation tends to increase labour costs but has positive consequences in terms of yields and profitability. For traditional producers, organic systems provide better incomes. When switching from intensive forms of agriculture to organic farming, labour costs are higher, input costs are lower, yields may be reduced and overall income is higher. First-year losses in yields are often considerable. By the third year, yields have typically stabilized. Although some stabilize at a yield level lower than before, some of the more sophisticated farmers are able to actually improve yields with organic methods. Measuring total farm yields is more appropriate than measuring single crops, since some diversification away from dependence on a single cash crop is a characteristic of organic farming. Organic systems, primarily because of price premiums, are generally more profitable than conventional ones and more than make up for yields or productivity losses that may occur during transition.

Greater income is the reason most farmers give for converting to organic agriculture, followed by health, ideological and environmental reasons. First movers tend to be farmers using rustic or traditional methods of cultivation and farmers with access to certification and marketing.

Domestic market channels for organic products are limited in China, and even more scarce in India. Many farmers are primarily oriented toward export sales. However, a surprising number — while not eschewing the market — are primarily focused on the intrinsic local benefits of organic production. In such cases, lower production costs, improved soils, fewer toxic chemicals, self-reliance in inputs and harmony with nature were cited as the most important reasons for converting to organic farming.

Many market-oriented organic farmers have some support systems for certification and marketing to induce their adoption of strict organic practices. The most difficult hurdle for small farmers to surmount is the lack of adequate technical advice (extension) on production technology. The second most important requirement is market information or promotion. Its importance reflects the typically modest success of the firms or NGOs that undertake marketing and sales. Financing for transition or expansion was ranked only third in importance, followed by lower cost of certification and then assistance with quality management and internal control systems.

It is important to note that the markets for quality safe foods —for which organic products are particularly well-suited — are large and are likely to continue growing strongly. This demand makes safety and quality increasing prerequisites for entry to the market but, as the Green Food experience in China has shown, price premiums can be limited. While organic premiums are very high in a few markets, the global experience is somewhat less promising as more and larger producers enter this lucrative niche. Established organic commodities like rice, sugar and coffee have already seen considerable reductions in price premiums. Promises to farmers about enormous market profits may prove to be misleading, especially after the two-three years it typically takes to be certified.

While this absence of synthetic agrochemicals is one component of organic farming, there are also significant other requirements, such as meeting a number of production and environmental standards and keeping adequate records, that must be satisfied in order to be certified as organic. For farmers, developing and managing their own Internal Control Systems is a way to both minimize compliance costs and improve their association's responsibility and management skills and so become better prepared to manage the plethora of other standards that are increasingly mandated for trade. Certification is costly for small farmers and often not in the name or control of the farmers that are certified. This limits their market options to those dictated by the certificate owner—usually a firm— and possibly diminishes their interest and commitment to organic farming.

There is generally adequate availability of organic inputs and most organic projects did not suffer from negative plant health or soil fertility issues. Instead, many noted improved soil characteristics. Organic systems work particularly well with livestock components, especially in less fertile areas. Livestock can facilitate fertilization, provide power and fuel. They are also an excellent source of food security and income diversification.

Given that labour requirements are generally higher than in conventional systems, organic agriculture can prove particularly effective in bringing redistribution of resources in areas where the labour force is underemployed. This can help contribute to rural stability, especially where labour is abundant and migration occurs.

Impacts of organic agriculture and the pros and cons of adoption

Organics have not cornered the market on good agricultural practices. Other farming systems such as Integrated Pest Management and certification systems such as EUREP-GAP (Euro-Retailer Produce Working Group/Good Agricultural Practices) share common processes with organics. Organic agriculture, as a systemic development package, fits into the approach of ‘new growth economics', that stresses knowledge and innovation as factors in production combined with new institutional models (e.g. agro-industry clusters, forward-backward linkages, etc.). Organic farming systems embody many elements of sustainability that make them suitable tools to reduce poverty:

  • long-term commitment to soil fertility, particularly addressing soil erosion and degradation or desertification;
  • reduction of external energy consumption and water requirements;
  • knowledge-intensive rather than capital and resource-intensive; coupling traditional knowledge with modern methods such as bio-controls and efficient nutrient management;
  • integration of traditional knowledge, joint problem solving, and farmer to farmer exchange can improve community relations and lead to greater involvement and commitment of producers.

For small and poor farmers, organic farming can be an effective risk management tool that reduces their input costs, diversifies their production and improves local food security. For rural communities it can provide improved incomes, better resource management and more labour opportunities. For agricultural competitiveness, it meets the increasing demands for improved food safety methods and traceability that are becoming the hallmark of high-value agricultural trade. For governments, organics reduce the possibility of environmental contamination, reduce the use of chemical inputs (often imported) and minimize the public health costs of pesticide poisoning. For nearly everyone involved in its production, processing and trade, organic agriculture simply earns more money.

Today, the shifting regulatory, business and consumer environments are inducing fundamental changes in the global trade regime, that increase the demand for quality and safety standards. This in turn has profound implications especially for small and medium producers. Since organics intrinsically meet many emerging trade standards, organic methods can actually help producers to overcome barriers at entry that such standards represent.

Workable solutions: public sector roles in each country

In many countries, agricultural policies have not favoured organic agriculture. However this is changing, as the fiscal and risk-reduction benefits are increasingly realized at the government level. Both China and India have a considerable amount of organic or ecologically friendly agriculture and like many countries are working to adopt appropriate organic standards and policies. However, both are somewhat distinct in their development and approaches.

Today, much of the market-oriented organic farming is an arrangement between trading companies and farmers, in which the companies are clearly dominant. This model is particularly pervasive in the developed coastal regions of China and has provided useful opportunities for farmers in these areas, where agriculture is under intense pressure from industrialization and urban expansion. The same corporate model now also prevails in poorer regions as well, but puts farmers at a disadvantage, since most of them labour with weak farmer organizations, few production scale efficiencies and limited market orientation; consequently, they receive only a small part of the benefits of organic production. Providing opportunities for the strengthening of farmer associations and NGOs could help remedy some of these shortcomings.

The market aspect is most often a primary factor for farmers. Today's development professionals (government, NGOs, international agencies) are often not adequately trained to help farmers develop a strong market orientation and therefore it must be sought elsewhere. The most efficient way to do this is by inviting the private sector to provide marketing services. However, some caution is warranted since at least some of a firm's goals, such as maximizing profits, may be in opposition to the best interest of farmers. The public sector, including government and NGOs, can support farmer organizations at the outset and help ensure equity in their partnership with private companies as well as foster adequate contract-farming laws. Ultimately, a market-oriented value chain can be developed that takes full advantage of each partner's strengths in order to fortify competitiveness, while also ensuring a fair share for producers. India's NGO sector and some of its state governments have already begun taking this approach to strengthen their farmers.

The quality of certification systems is very uneven and, in both countries, the domestic verification and certification systems that could be the most accessible to farmers, often lack the necessary checks and balances to ensure credibility. In both India and China, since landholdings can be very small, farmers must organize in order to apply for group certification that can significantly reduce their individual costs and enable them —by owning their certification rather than having a firm own it— the independence to negotiate their own terms of sale.

India, through its NGOs and state governments, has now begun to disseminate organic information more broadly and directly to farmers, while China's dissemination to its farmers is still in the nascent stages, which may hinder adoption of organic agriculture. On the other hand, China's notable development of Green Food may provide a basis for domestic organic development, whereas India's domestic markets are very marginal. Domestic market development can be an important factor in order to stimulate farmers to improve their practices and adopt organic methods in both countries. Improved consumer education efforts in regard to standards and what they represent could stimulate this considerably. Consumer confidence in both nations is underdeveloped and, particularly in some Chinese cases, consumers doubt label claims.

Public investment in organic agriculture is very limited and in order to advance, it will be important to overcome the systemic biases in public expenditures that favour conventional agricultural systems. China lacks significant research in organic technology and organic extension services to reach farmers. India has already begun to invest in organic research, but its extension services also have little preparation or experience in modern organic methods. Since radical changes in extension services are difficult, providing farmer-friendly databases, based on a consortium of national and international learning institutions - including those that deliver market knowledge - could prove very cost-effective. India's subsidies to the fertilizer industry serve as an example of disincentives that may limit the adoption of organic agriculture and make them less competitive.

Conclusions and recommendations for developing organic agriculture initiatives

Generally speaking, there is no significant evidence that organic methods would be deleterious to small farmers. In fact, most of the cases clearly noted a number of benefits from which it is reasonable to conclude that the promotion of organic agriculture among small farmers can contribute to poverty alleviation and is well warranted.

In the context of development, the role of organic agriculture cannot be fairly assessed in the narrow economic terms of market premiums. Its value does not rest merely in the fact that it can provide higher incomes, but in that it can potentially contribute to long-term resilience and stability, particularly in terms of resource conservation, crop diversification, food security and a number of positive environmental externalities.

Further growth and meeting the demands for certification, quality and consistency of increasingly mainstream distribution channels, like supermarkets, will be difficult for most producers and will require the organization of small farmers and a combination of public and private support. Local farmer associations can facilitate the exchange of knowledge, support farmers through the early conversion processes, improve production and post-harvest controls, achieve economies of scale, improve farmers' bargaining position and play an important role in marketing of organic products. For small farmers, external private firms or NGOs can fill some of the gaps but may not be an ideal permanent substitute for farmer associations.

Poorer small farmers seem to experience a positive transition and outcomes when converting to organic farming. For many small farmers practicing rustic or traditional methods of agriculture, transition to organic results in an increase in both yields and overall incomes. The implications for converting conventional farmers that practice intensive cultivation methods would necessarily be different and more dependent on careful analysis of the probable outcomes. Transitional periods can mean uncertainties and even a decline in yields for those farmers that employ intensive agricultural methods and are dependent on external inputs, because the benefits of organics are not usually immediate in such cases. In most cases, overall farm incomes — though not always yields — soon recover. In the long run, organic methods can be more cost-effective and even more profitable, but only if properly applied. The transition process and the time it takes are a barrier to many conventional farmers, who therefore require various types of conversion support.

Organic production requirements, the sometimes lengthy conversion process and the realities of sometimes shallow organic markets can surprise farmers and development professionals alike. Those farmers that adopt a holistic understanding of organics and are focused on local benefits such as improved soils, fewer toxic chemicals and self-reliance in inputs, rather than just on the premium price for the crop, are likely to better withstand setbacks, reduced premiums and difficult periods, especially during the conversion stages. It is risky for a project to work with farmers that convert only because of the promise of higher prices, since such price premiums may not be readily available. Without adequate motivation and recognizable rewards for the positive environmental externalities they generate, farmers are more likely to only participate in a superficial manner, not adhere to the standards and receive only limited benefits.

Organic farming is primarily knowledge-intensive, whereas conventional farming is more chemical- and capital-intensive; organics can therefore be an advantage for poorer farmers. Accordingly, it is difficult to establish a one-size-fits-all approach, since conditions will vary in different zones. Organic projects require that time be built into the process for farmers to test and learn new technology and methods. Knowledgeable extension services are critical. Local know-how, especially from experienced farmers and knowledgeable elders, can smooth the transition and reduce risks. It is also important to provide farmers good access to sources of knowledge about the application of organic methods to their crops and agro-ecological conditions. Nevertheless, holistic methods don't often provide a quick fix and require a longer-term commitment. Therefore, governments and local institutions such as NGOs need to be committed to supporting a multi-year process. Such a commitment might require: acquisition of organic production technology and training, especially for extension service agents; preparation for certification and initially covering its costs; and very limited subsidies to cover possible reduced income during the transition period.

Perhaps the single most important factor for successful organic adoption is the availability of a reliable institutional support system that can initially facilitate the access to the many components that farmers find difficult to reach. These include technology, initial financing for certification and input production, and marketing. Capacity-building at the farmer level (local farmers associations, local training and advisory services) should be a central aspect of any strategy aimed at using organic agriculture as a tool for poverty alleviation.

The process of certification can be difficult and costly, but in most of the cases reviewed, NGOs and partnering firms facilitated the process and even offset the initial costs for farmers. Nevertheless, improving access to certification by keeping costs low and facilitating Internal Control Systems will enable small farmer groups to have their own certification and thereby greatly improve their market position.

Development policies must recognize the critical need to integrate professional marketing support. Helping farmers to first assess their market orientation and then access targeted organic markets requires business and marketing skills that many NGOs and farmer associations often lack. It is not necessary to turn a farmer into a trader, but an apex body or a network of organizations can be fortified with outside support and training in order to take advantage of scale economies, improve bargaining and significantly reduce transaction costs. A private sector partner can also fulfill this role, provided that the arrangement secures a measure of equity for participating farmers. Any strategy to promote organic agriculture among the poor ought to also consider crop choices. Local varietal adaptability is important and so is the exercise of caution regarding commodities such as coffee or tea, whose international markets are inherently volatile.

On the surface, it appears that conversion can be an easier process where agro-ecological conditions are favourable for farming and environments are more pristine. However, some of the more dramatic examples of success have occurred under much more difficult conditions, such as semi-arid or degraded landscapes. In such cases, because organic agriculture builds soil quality and is generally less water intensive than conventional agriculture, it can be particularly productive where conventional farming would be impractical or too costly.

Key recommendations for IFAD and its partners

It is useful for IFAD initiatives to foster and encourage farmers associations as a central aspect of any strategy aimed at using organic agriculture as a tool for poverty alleviation in rural areas. These can be critical to ensure participation and equity for small farmers and can take up responsibility for critical aspects of the supply chain such as marketing, certification, and integration of a good internal quality management system to help ensure quality, traceability and organic compliance.

IFAD can play a useful role by fostering reliable institutional support systems that can initially help provide the many components that farmers find difficult to access. These include capacity building and the acquisition of adequate technology and training, marketing, and initial financing for certification and localized input production.

In order to take advantage of scale economies (marketing, production, certification, etc) and significantly reduce transaction costs, IFAD can help to organize apex bodies or a network of organizations that can then be fortified with professional support and training. IFAD and partner agencies can play important roles to support mutually beneficial partnerships between farmers and private firms and can even enhance market relations by facilitating farmer groups to jointly engage in contract farming arrangements.

In order to improve the likelihood of success, IFAD and its partners must assure that planning and implementation integrate appropriate sequencing and pre-assessments and that any organic strategies build adequate time—at least three-five years – into the learning process.

Negative biases in public expenditures that favour conventional agricultural systems and discriminate against smallholders and organic systems can be improved at the government level by assessing the research, extension and perverse subsidies that hinder the development of organic options. IFAD's proven experience with poverty mapping systems and farmer assessments can ensure that the investment selection criteria adequately identify high poverty areas with smallholders and thereby reach farmers that most need support.