Economics Homework

AN INSIDE LOOK Organic Farming on the Decline in the Unite= d Kingdom

 

GUARDIAN.CO.UK

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Farmers Turn Away from Organic as Sa= les Drop

 

Farmers have begun to turn away from organic food productio= n in the face of waning interest from the big supermarkets.

 

The amou= nt of land being converted to organic cultivation across the UK has dropped= by two-thirds since 2007, according to statistics released by the Departme= nt for Environment, Food and Rural Affairs, as falling sales of organic pro= ducts mean fewer farmers are seeing a reason to change.

 

a Sales of o= rganic products fell by 5.9% in the UK last year, according to the Soil Ass= ociation, from £1.8bn in 2009 to £1.7bn. That continued a decline from = record sales of £2.1bn in 2008, and came amid rising food prices. The amo= unt of organic poultry being produced has also fallen steadily.<= /span>

Last year, across the UK, o= nly 51,000 hectares were in “conversion”—the process farm= ers need to go through to have their land and practices certified as organi= c. That is less than half the amount of land in conversion in 2009, itself = down markedly from the 2007 peak of 158,000 hectares. . . .

c For livestock farmers, the picture is mixed. The= number of cattle reared organically has risen steadily, to more than 350,0= 00 last year. But despite widespread publicity by food campaigners on the c= laimed benefits of choosing free range or organic eggs and chickens, more t= han half a million fewer organic chickens, turkeys and other poultry were p= roduced in the UK last year.

Amid falling sales overall, some specialists= are thriving. Abel & Cole, the organic box scheme, expects a 40% incre= ase in sales this year. Keith Abel attributes this to the same reason he be= lieves organic sales have fallen overall—because the big supermarkets= have taken organic products off the shelves to make room for cheaper non-o= rganic goods. “It is a self-fulfilling prophecy: they take them off t= he shelves, and they sell less,” he said. “But that’s gre= at news for me.”

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S= ource: “Farmers turn away from organic as sales drop: The economic do= wnturn means organic farmers are less likely to reap rewards of premium pri= ces for their produce,” by Fiona Harvey from The Guardian, August 11,= 2011. Copyright © 2011 by Guardian News and Media Ltd. Reprinted by perm= ission

Key Points in the Article

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Since reaching a peak in 2008, orga= nic food production and sales in the United Kingdom have steadily fallen, a= s has the amount of land farmers have converted to organic cultivation. The= recession has been cited as a reason for the drop in sales, with large sup= ermarkets cutting back on their organic selections. With sales numbers decl= ining, many farmers have found it more difficult to justify the added expen= se of converting to organic production. Some farmers who had switched to or= ganic when the British government was subsidizing conversion and production= have since gone back to conventional methods now that subsidies have decli= ned. While organic produce sales have declined in the United Kingdom, organ= ic livestock sales have been mixed, with cattle production on the rise but = poultry production falling.

 

Analyzing the News

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a Organic prod= ucts usually command a higher price than their non-organic counterparts, an= d up until 2008, the demand for organic food was increasing in the United K= ingdom. The potential for higher profits attracted many farmers to the orga= nic market as demand was increasing. However, the recession coupled with ri= sing food prices had a negative effect on the market for organic food, and = sales have declined each year since 2008. The decline in sales is due to a = decrease in the overall demand for organic products. Figure 1 shows the mar= ket for organically grown corn. The decrease in demand is illustrated as a = shift from D1 to D2, where both the equilibrium quantity and equilibrium ma= rket price decline.

 

b With sales falling, fewer farmers are conver= ting to organic production, and some of those who had switched to organic a= re now reverting to conventional farming methods. The chapter notes that so= me firms exit a market when they experience economic losses. The decrease i= n demand in Figure 1 causes the price to decrease from P1 to P2. This decre= ase in price causes the individual farmer’s demand curve to shift fro= m D1 to D2 in Figure 2. The price per bushel decreases, and the farmer redu= ces production from q1 to q2. At the lower market price of P2, the farmer h= as an economic loss represented by the area of the shaded box. Some farmers= suffering losses will choose to exit the market. <= b>c<= /span>&nbsp= ;While organic produce and poultry farmers have been experiencing declining= sales in the United Kingdom, organic cattle production has continued to ri= se to keep pace with growing sales. As long as demand continues to increase= and organic cattle producers make an economic profit, more producers will = have the incentive to enter the market. If the demand starts to decrease, t= hough, as it did in other organic markets, we would expect to eventually se= e producers of organic cattle begin to exit this market as well.