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Values Chains, Organic Certification, and Organic Markets

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Title: 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 Operations1992
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.
10
(No Transcript)
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 gt 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 gt 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 AM 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
plt.1 plt.05 plt.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 gt indirect NonCertgtdirect markets
  • Gross organic farming income CertgtNonCert
  • Percentage of household income CertgtNonCert
  • Years farming CertgtNonCert
  • Years farming organically CertgtNonCert
  • Certs more likely to be full time.
  • Distance to markets problem- NonCertgtCert
  • 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
51
Community Values Tradition Quality of Life
52
Challenging Interesting Intellectually
Appealing
53
Response to Farm Chemical Regulation
54
Animal Welfare Issues
55
Summary
  • Economic based attitudinals were significant with
    a positive relationship to certified
    farmers-price premiums, consumer demand,
    regulation response, fewer acres.
  • No differences on other philosophical variables.

56
Attitudes Regarding Organic Certification
57
With NOP Standards, Organic Certification is
Simpler and Easier
58
Organic Certification Helps Me Make a Better
Living
59
Customers Expect Me to Be Certified
60
Organic Certification Not Needed for Small Scale
Direct Sales
61
Dont Need Certification Because My Customers
Trust Me
62
Am Not Certified Because it is too Expensive for
My Small Operation
63
Am Certified Because Have to Be to Sell as
Organic
64
Am Certified Because Most of My Product is Sold
in Indirect Markets
65
Conclusions
  • Demographics As expected?
  • Structurally As expected?
  • Attitudinally As expected?
  • Several significant differences between certified
    and non-certified organic producers.
  • Some support for conventionalization and
    bifurcation.

66
Back to the Value Chain
  • What are the trends in value chain governance?
    Who drives the chain?
  • Which system is more sustainable?
  • Indirect markets
  • Direct markets
  • Which system is more risky for the producer?
  • Indirect markets
  • Direct markets
  • To Certify or Not Certify?
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