Eco-the_Organic_Food_Industry

The Organic Food Industry The organic food industry is in the business of providing food grown without the use of insecticides, fertilizer, hormones, antibiotics or biotechnology. Americans are looking for more organically produced food today than they have in the past. The new appetite for this organic food has been in such a demand that supplies cannot keep up with this demand. The rate of growth in the organic food arena has been 15 to 21 percent per year. Total food sales are between 2 to 4 percent. (Quaidd, 2006) One of the obstacles in the organic industry is organic farms are not increasing fast enough here in the United States. Manufactures of organic foods have been looking to other countries for their ingredients. Another obstacle for the organic food industry is the cost to produce organic products is more expensive. With the need to look outside the United States for organic ingredients and the process of producing organic products, the prices for organic products are higher. (Quaidd, 2006) Shifts and Price Elasticity The price elasticity of demand for the organic industry at the present time is elastic. Even though the supply of organic products cannot keep up with the demand, the number of organic farms is increasing and supplies can be obtained outside the United States. Since organic foods are not the only foods available, they would be considered a luxury item. The price elasticity of supply is such that the increase of organic farms, and greater organic supplies, the price of organic foods will become lower. (Quaidd, 2006) The demand for organic foods is becoming so great that the American farmers cannot supply the need. The United States spends over $1 billion per year to import organic foods. The ratio is 8-to-1 with imported organic foods being the highest. Europe does not have as great of a demand for organic foods, so their farmers are able to export organic foods to the United States. (Faber, n.d.) American farmers realize the demand for organic foods so many are making the transition to produce organic foods. The conversion takes up to three years and production often suffers. This fall in production hurts the pocket-book for these farmers, but the long-term benefits outweigh this short set-back. Some organizations have programs which make small transition payments to farmers trying to convert. Without the use of pesticides, the production of organic foods can be lower. In some areas of the country, revenue can diminish by as much as $100 per acre. Once the transition is completed, farmers usually see their yields rebound and they are able to charge a premium for the organic products. When farmers are able to collect the premium, most will recoup their losses. Buying organic foods would still be considered a luxury because it is not a necessity which we depend on in our daily lives. The price elasticity of demand for the organic industry at the present time is elastic. The cost and the availability of organic foods are an obstacle for many. The price elasticity of supply is such that as more farmers make the transition to organic farming, cost will become less and the availability will become more. (Faber, n.d.) Positive and Negative Externalities There are positive and negative externalities associated with organic farming. The transaction of a buyer and seller directly affects a third party in a positive way by making the environment a better place for everyone and everything. Fertilizer used in conventional farming ends up in our water supplies where dead zones are created. Dead zones are low in oxygen and marine life is not able to survive here. The negative externalities are the more organic farming grows, the fewer chemicals will be used, which will hurt the pocketbooks of the chemical companies who produce the pesticides and fertilizers. The negative externality will affect the economy by the loss of sales, which eventually will mean the loss of jobs in the chemical business. The industry of organic foods produces private goods which are both excludable and rival. These goods are excludable because it is possible to prevent someone from eating organic foods. Organic foods are rival because if one person eats organic food, another person cannot eat the same organic food. (University of Michigan, 2007) The positive externalities found here are due to organic farming is a better soil builder than no-till. Organic plots produce more carbon and nitrogen. Because of the increase of carbon and nitrogen in the soil, the yields of corn were 18 percent more than that of tilled plots. Organic farming was feared to be bad for the soil because it builds up organic matter in the soil and relies on tilling the soil. Studies have found that organic farming has more benefits than farming which uses herbicides to kill weeds and pests. (Comis, 2007) Wage Inequality A past new event related to wage inequality in the organic food industry was about how third world urbanization and how local commercial organic food growers would be priced out of business by the development of commercial agriculture in poor countries. A temporary system which would assign higher agricultural prices would help to put an end to the wage inequality in the organic food industry. The food coming from overseas is available at deep discount prices. (Hart, 2006). The World Trade Organization is the industry’s method for determining that there was an inequality. The world markets which provide food make up the main hurdle for the development of poor countries. Farmers from these countries work with the World Trade Organization to develop measures to protect a system which includes higher prices which does not affect the cost of product to consumers too much. (Hart, 2006). Workers who perform the same work to pick organic product in different countries do experience different pay rates. Wages fall in relation to the value of the goods offered to the consumers. The equilibrium of the labor power is assumed to be the same in these areas. Workers will migrate to jobs with better job conditions to make the same wage, or they will work under poor conditions as long as they make a higher wage. (Devine, 2003) With capital mobility, employers will leave the high wage area to be in a low wage area to make larger profits. Equalizing the profit rates in these areas offering different organic make-up, the prices would be lower and the profit will be higher. Labor unions can be put together to determine if there is an inequality. Labor unions can work with the employers on the behalf of the employees to balance the inequality. (Devine, 2003) Monetary and Fiscal Policies Some of the major policy issues are the cost of federal programs which try to increase prices received by farmers and the low prices received by Farmers. When farmers convert to organic farming, the production of price-supported commodities is reduced due to diversity of crops. (Cacek & Langner, 1986). A study done by Iowa State University came to the understanding that if the nation converted to organic methods, production would decrease, commodity prices would increase and the net farm income would increase. Along with that, export potential would decrease and the land used for agriculture would increase. Organic farming will reduce federal costs for supporting commodity prices, reduce the loss of fossil fuels, and reduce costs to maintain erosion, improve fish and wildlife habitats and allow future generations to use good land. Diversity of crops adds some protection from price changes in a single commodity. (Cacek & Langner, 1986). Organic farmers are able to produce a variety of products throughout the year, whereas a farmer who only grows corn is very limited. Organic farmers will be able to employ additional help during the different seasons of harvest. Since organic farming is still a growing area, the prices of organic goods are higher than that of conventional produce. More people are turning to organic farming because of the environmental and health benefits. Organic farmers do not spend as much money as conventional farmers. Organic farming does not require a lot of fertilizer or pesticides, because of this; they do not need to borrow as much money as conventional farmers. (Cacek & Langner, 1986). The need for organic farmers has increased so much that an outreach program has been developed. This program works to contact immigrants in communities in order to find organic farmers. These programs are looking to attract immigrants with agricultural backgrounds. (Sustain. n.d.). The benefits to these immigrants is they will learn, growing skills, financial and marketing education and access to land, equipment and capital in hopes to increase the number of organic farmers. This focus will make immigrants, refugees and farm-workers self reliant contributors to local food systems. This effort has been funded in order to help determine how immigrants are able to be connected to jobs and farm ownership opportunities in the local organic food arena. (Sustain. n.d.). How the Economy affects Organic Farming People know the health benefits of organic farming, but the produce and the production is more costly than for food produced using pesticides and chemicals. Inflation costs control a majority of the organic food purchased. Some families are having a hard time making ends meet. Although they are aware of the benefits, they simply cannot afford to spend the extra money on organically produced items. Since organic farms are in limited supply, the prices of organic produce will continue to be pricey until the number of organic farms increases to the point of being able to “over-produce” organic produce. One economic influence which can affect the organic farming industry in a negative way is the rising price of oil. Since there are limited numbers of organic farmers, they can not afford to deliver organic produce to non-local markets. Organic farmers will actually lose money if they try to distribute their produce outside their boundaries. Organic Farming will Survive Even with the many obstacles of producing enough organic produce and the pricing issue, organic farming will survive. Organic farms will increase in numbers and the shift in price elasticity will stabilize. Immigrants will be given the opportunity to become organic farmers in efforts to fill the void of organic farmers. With more organic farms being created, the availability of organic produce will be abundant and the prices will decrease to the point of being affordable and available for everyone who wishes to purchase organically produced goods. The development of more organic farms will diminish one of the economic influences on organic farmers. The increasing prices of oil will not be as detrimental to the organic produce industry because there will be more organic farms in more places and no need to transport produce outside of local markets. Reference: Cacek, T & Langner, L. (1986). The economic implications of organic farming Retrieved January 17, 2007, from http://www.eap.mcgill.ca.htm Comis, D. (2007, July 10). Organic farming beats no-till' Retrieved November 30, 2007, from http://www.ars.usda.gov Devine, J. (2003). The value inequality. Retrieved December 20, 2007, from: http://archives.econ.utah.edu Faber, S. (n.d.) Demand for organic food growing faster than domestic supply. Retrieved November 23, 2007, from www.organicconsumers.org Hart, K. (2006). Organic Trade. Global Food Politics and Local Economic Democracy Retrieved December 20, 2007, from: http;//www.thememorybank.com Quaidd, L. (2006, July 6). Demand for organic food outstrips supply. Retrieved November 23, 2007, from www.sfgate.com Sustain. (n.d.). Organic Harvest: An action plan for building the Illinois Organic Food System. Retrieved January 17, 2008, from http://www.ams.usda.gov University of Michigan. (2007, July 10). Organic farming can feed the world. Retrieved November 30, 2007, from http://www.ns.umich.edu