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Taylor, M., and Granatstein, D. 2013. A cost comparison of organic and conventional apple
production in the state of Washington. Online. Crop Management doi:10.1094/CM-2013-
0429-05-RS.
Abstract
Organic apple production expanded rapidly during the past decade due to strong
demand, new technology, and price premiums, which suggests it is profitable for
growers. No rigorous analysis of cost of production has been done to help project
profitability in the face of continued increase in supply. The data presented here
compare two methods of estimating cost of production and find that production of
organic apples in Washington State, the leading producer, is approximately 5 to
10% more costly than conventional production on a per-acre basis.
Introduction
Organic apple production expanded rapidly during the past decade,
reflecting increased consumer demand and new technology to control chronic
pests and problems (3,5). Organic apple acres in the United States nearly
doubled from 9,270 certified acres in 2000 to 17,626 acres in 2008 (9). As
organic apples have moved from a niche product to a commodity, there is
concern among growers and the industry about retaining a premium price that
can help cover the perceived additional costs and reduced yields with organic
production (4). The apple industry compiles detailed sales and price information
for organic and conventional apples (e.g., Washington Growers Clearinghouse),
but rigorous estimates of the cost of production are lacking.
A question facing the apple industry is just how profitable organic
production will be in the long run. What if price premiums shrink or disappear?
Will organic production continue or will it revert to conventional production?
Economic theory suggests that a price premium decline could result from an
increased supply of organic apples through either expanded production acres or
greater yields on existing acres. Price premiums attract more growers such that
in the long run the supply of organic apples will reach a level where economic
profits are driven to zero by declining prices. Table 1 displays projected prices
for Washington organic apples based on increased sales volume (6). The price
premium is estimated to drop to zero once organic apple sales reach 12% of total
Washington sales volume. During the 2009-2010 marketing year, organic apples
sales were 6% of total apple sales for Washington. The average price received
that year for all apples was $19.05 per 40 lb box (FOB) and $24.89 per box for
all organic apples. These prices and corresponding volumes are very close to the
values predicted by ORourke.
Table 2. Production costs for conventional and organic apples from 2007 ARMS.
Production costs for all Production costs for all
conventional apples ($/acre)x organic apples ($/acre)y
Variable costs Variable costs
Property & estate taxes 75.78 Property & estate taxes 82.67
Rent & lease payments 58.26 Rent & lease payments 17.28
Maint., repairs, fuel & oil 485.00 Maint., repairs, fuel & oil 560.00
Property & estate taxes 75.00 Property & estate taxes 75.00
Conclusion
The budgets shown in this study provide insight into the cost of producing
both conventional and organic apples in the state of Washington. Comparing
costs from the 2007 ARMS survey and the 2009-2010 WSU enterprise budgets
allows for a better understanding of the range of costs that growers face in the
apple industry. The nature of the ARMS survey is such that certain economic
costs may not be captured and the single year snapshot may alter the average
costs if some orchards faced unusual production or management circumstances.
The WSU budgets are more comprehensive in the inclusion of all economic
costs, but also assume a high level of production and management. Therefore,
the per-acre costs should be considered a plausible range for apple production,
with the ARMS data providing a lower bound and the WSU budgets an upper
bound.
The comparison between organic and conventional costs of production is
similar, regardless of the data source used. It appears that the per-acre cost of
producing organic apples is approximately 5 to 10% greater than conventional
apples, at least for the state of Washington. This result may not hold for other
growing regions in the United States, especially those prone to different disease
and pest problems. Growers in the semi-arid region of the western United States
face less daunting pest and disease problems than growers in more humid
regions. With estimates of the cost of production for both organic and
conventional apples, it is possible to estimate profits to growers. Table 4 displays
the projected profit per acre for several different price and yield scenarios.
Previous research has suggested that, on average, organic growers will produce
approximately 10% less per acre then their conventional counterparts (4). The
Literature Cited
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and producing organic Gala apples in Washington. Coop. Ext. Factsheet FS041E.
Washington State Univ., Pullman WA.
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and production Gala apples in Washington. Online. Coop. Ext. Factsheet FS005E.
Washington State Univ., Pullman WA.
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State Univ., Wenatchee, WA.
6. ORourke, D. 2009. Will the organic apple gamble pay off? Proc. of the 104th Annual
Meeting 2008. Washington State Hortic. Assoc., Wenatchee, WA.
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