Generally speaking, organic farming tends to be more lucrative than conventional farming. Organic farms in the U.S. and Europe, for instance, typically see greater profits due to higher prices or lower input expenses than conventional farms. In developing countries, organic farms tend to have larger profit margins than non-organic farms due to higher yields and prices.
Organic farms that are well-established typically have lower yields compared to conventional farms. However, research conducted in the United States revealed that conventional farms have higher yields than organic farms in wetter regions like the Corn Belt, whereas in drier areas, organic yields exceed conventional yields. In developing countries, organic yields are generally higher than conventional yields, particularly under less favorable conditions such as drought.
It is possible to compensate for the lower yields of organic farms in industrialized countries by taking into account the quality of the target crop. For instance, when comparing the relative yield and composition of vegetables over a 12-year period, conventional farms yielded 24% more, but organic vegetables had 28% higher dry matter. Additionally, organic produce has been found to contain higher levels of vitamins, minerals, healthy fatty acids, and phytonutrients.
Organic farms generally have lower production costs compared to conventional farms. Studies in Europe have shown that variable costs are 60-70% lower, but fixed costs are higher for organic farms. However, total production costs are still lower for organic farms overall. It should be noted that these data are based on relatively inexpensive input costs, and the increase in fossil fuel prices is likely to have a greater impact on conventional farms that rely heavily on fuel, synthetic fertilizers, and pesticides. Mechanized organic farms that use plastic mulch will also be affected.
Production costs vary by region. For example, in the U.S., organic dairy farms in Wisconsin have lower feed and labor costs than similar farms in New England and are therefore more profitable. In North America, the higher cost of organic feed creates the greatest differences in economic performance between organic and conventional dairy farms. However, labor costs on organic farms are often higher. European studies have shown that labor costs are 10-20% higher in comparable organic operations than in conventional ones. Interest on loans is not often included in production cost calculations, but conventional farmers have significantly higher debt levels than organic farmers, particularly those in developing countries.
While organic farms have lower yields than conventional farms, they are able to make up for it through lower production costs and higher prices for organic products. However, overreliance on the organic price premium could threaten the long-term economic viability of organic farming. Therefore, a strategy of diversification is advised to mitigate this risk.
According to Nemes, profitability should not only be assessed based on the balance sheet, but also take into account the environmental, health, and social costs of farming. Conventional agriculture tends to contribute more to environmental problems such as soil erosion, water pollution, and the destruction of wildlife habitats, but these costs are not always accounted for in the balance sheet.
The marketplace creates unfair competition for organic agriculture due to several reasons:
- First, current subsidy schemes that favor conventional production have a distorting effect.
- Second, research and extension services are not equally available.
- Third, the market prices of conventional foods fail to capture the real environmental, social, and health externalities.
If subsidies and extension services were more balanced, organic yields could increase, and organic farming could become even more profitable. Furthermore, if the real costs of agriculture, including its environmental, social, and health consequences, were factored in, the true profitability of organic farming could be determined.