Costs of Actual OA Programs in PRC, Thailand, and Sri Lanka

In this section, we report on the actual costs of moving to OA and producing organic produce in PRC, Thailand, and Sri Lanka.

4.1 PRC Case Studies

There are two case studies from PRC: Wanzai County and Wuyuan County (both in Jianxi Province).

Wanzai County

The organic producers specialize in mixed horticulture crops with ginger, strawberry, and green soya bean as main crops. They also grow some organic rice. There are 2,400 farmers, covering some 1,950 hectares. For convenience and comparability of data, all costs are reported in US dollars. The breakdown of the costs by category is given in Figure 1 [ PDF 14.7KB | 1 page ]. The estimated costs are shown in Table 2 [ PDF 16.1KB | 1 page ], based on data provided by a team that carried out this study.

The total costs of supporting OA are around US$77 per farmer per year, made up mainly of input subsidies (57%), followed by training (21%), transition (14%) and inspection/certification (8%). Of the total, the farmer bears about one third (33%), the private company bears 57%, and the state the rest (10%).

In the next section, we compare these costs with the additional gains to the farmers in terms of net Income and the MDGs.

Wuyuan County

In Wuyuan County, the OA production is exclusively tea. There are 508 farmers engaged in the production. Cost estimates have been provided directly by one of the authors of the study and are given in Table 3 [ PDF 18.6KB | 1 page ], and the breakdown is given in Figure 2 [ PDF 18.6KB | 1 page ]. The figures are considerably lower than for Wanzai, with total costs per farmer of US$13.5, compared to US$30.5 for Wanzai. This is made up of training (22%), subsidies (22%) and inspection/certification (56%). There are no expected transition costs as there is no decline in tea yields. In terms of the shares across different agents, the farmer bears 15%, and the private company the rest (85%). There are no costs to the state, probably a reflection of the high profitability of the program.

4.2 Sri Lanka Case Studies

There are two programs in Sri Lanka, one run by a private company and one by an NGO. Each is considered in turn.

Private Company Case Study

This project focused on tea, cloves, and pepper (in order of importance) in the Kandy area. The data was collected in 2005–2006. There are about 1,000 organic farmers in the surveyed area and the average size of each farm is about one acre (0.45 ha.). The costs of OA are estimated as shown in Table 4 [ PDF 15.8KB | 1 page ]. The breakdown of the costs by category is given in Figure 3 [ PDF 18.7KB | 1 page ].

The total costs of supporting OA are around US$174 per farmer per year, made up of inspection/certification costs (61%), followed by input subsidies (21%), transition (10%) and training (8%). Of the total, the farmer bears about 23%, with the rest being paid by the private sector.

It appears that the Sri Lanka conversion program is highly inefficient as shown by its high attrition rate and significant yield drops of 20%. This is why the company needs to provide very high subsidies to farmers to ensure that farmers stay on with the organic project. All these factors make conversion costs very high. In addition, internal costs are very high. The internal controls costing (ICS) costs are very high. The external inspection cost is only US$7.52 per farmer while the ICS is 13 times higher. This is unrealistic. With around 1,000 farmers, a maximum of 10 ICS staff is needed (1 staff responsible for 100 farmers). Assume the ICS staff wage is around US$100 per month or US$1,200 per year, the total ICS staff cost would be around US$12,000, or average of US$12 per farmer. Other ICS expense should not be more than US$10 per farmer. Under optimum circumstances, the ICS cost should be around US$15 per farmer, and at the maximum, not more than US$25 per farmer. This makes a total cost per farmer of US$105.6 per annum. For both these reasons, the case study is not an average one but rather an example of a very poor performance project.

NGO Case Study

This project also focuses on tea, cloves, and pepper (in order of importance) in the Kandy area. The project was initially a tea project but once the farm was certified as organic, other crops grown also received organic status, adding to income from certified products. The only difference with the previous one is that it is administered by an NGO. The costs of OA are estimated as shown in Table 5 [ PDF 18.7KB | 1 page ]. The breakdown of the costs by category is given in Figure 3. The total cost is very similar to the private case (US$172 against US$174), but there are differences in the distribution between the different agents. In this case, a donor (Helvetas International, a Swiss NGO) provided the subsidy to the farmer and the NGO of US$16 per farmer (the farmer gets US$6.4 while the NGO takes US$9.6 to defray its expenses). The distribution between categories of expenditure, however, is not dissimilar (see Figure 4 [ PDF 15.3KB | 1 page ]).

For the same reasons as we gave in the previous Sri Lankan example, in our view this case study also represents an inefficient example of the adoption of OA. The attrition rate and yield declines are atypical. This is why the company needs to provide very high subsidies to farmers to ensure they stay on with the organic project. Likewise the ICS costs are far too high. The external inspection cost is only US$7.52 per farmer while the ICS is 13 times higher. This is really unrealistic. With around 1,000 farmers, a maximum of 10 ICS staff is needed (1 staff responsible for 100 farmers). Assuming the ICS staff wage is around US$100 per month or US$1,200 per year, the total ICS staff cost would be around US$12,000, or average of US$12 per farmer. Other ICS expenses should not be more than US$10 per farmer. In the optimum case, the ICS cost should be around US$15 per farmer, and at the maximum, not more than US$25 per farmer. For both these reasons the estimated conversion costs are very high, making this case study an example of a very poor-performing project.

4.3 Case Studies in Thailand

The Thailand case study was from the Northeastern part of the country (Ubon Ratchathani). The program covered 5,000 Rai, and 300 farmers, with each farmer holding an average of 16.7 rai, or 2.7 ha. The products grown are mainly rice and some leafy vegetables. The costs estimates are given in Table 6 [ PDF 18.9KB | 1 page ], and the distribution of costs by category is given in Figure 5 [ PDF 18.9KB | 1 page ].

At US$26 per farmer, the costs of shifting to OA in Thailand are the lowest of the three countries; considerably less than in Sri Lanka (US$170-172), or even in PRC (US$77). The distribution of the costs is also different. In Sri Lanka, inspection costs dominated; in PRC input subsidies dominated; and in Thailand, the main component is training costs. The share of the costs borne by the farmers is 53%.

It is difficult to fully explain the differences in costs among the case studies but some things stand out. The first is the substantial variation in inspection costs and certification costs, with Sri Lanka standing out as exceptionally high. Differences in the costs of certification may be due to the crop system and how long it has been since the certification took place. In the case of Thailand, farmers who converted to organic much earlier than PRC or Sri Lanka have lower costs. Second, we note the large subsidies in Wanzai in PRC were largely borne by the private company. Third, we note the differences in the share of the cost borne by the farmers—11% in PRC, 26% in Sri Lanka and 53% in Thailand. Fourth, we note that the training costs are quite similar in all three country case studies. In PRC, they are US$6 per farmer, US$14 per farmer in Sri Lanka and US$13 per farmer in Thailand.

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Comment(s)

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1. Prof. J. George
   (posted 19 February 2010 / 07:17:28 PM)
   
   The authors needs to be complimented for this study that is first of its kind particularly in so much as relating it to MDG. It is unfortunate that the UNESCAP-ADB-UNDP trio did not take cognisance of it while reviewing MDGs recession during the recent global financial crisis. The study is timely as it indicates the way out for rationalizing inclusive growth strategy in a region that is characterised by not only a larger proportion but also growing numbers of hungry and poor people in the world.
   Secondly, the paper completely compliments the UNEP-UNCTAD's path breaking longitudinal study in African and the Central American continents as well as trade and environment review of 2006 and and 2009.
   Thirdly, The study is also contemporary as it is a one shot answer to the the vexing question of climate change related mitigation and adaptation strategies.
   
   Fourthly, the study does reinforce that food security as enshrined in MDGs 1C is fully attainable at a cost effective manner. ADB need to take conscious decisions to explicitly reinforce it as its thrust area given that the strategy 2020 sounds hallo in the absence of a credible alternative. The paper provides a good indication to that pathway. The strategic economic management initiative as defined necessarily must be based on inclusiveness and organic agriculture restores that power in the hands of the producers for a number of opportunities for autonomous income enhancement amongst the poorer segments of the population, among other associated reform measures.