AIC Issues Brief No. 6, 1998.
Organic Agriculture in California: A Statistical Review Laura Tourte and Karen Klonsky
The size and growth of organic farming has stimulated considerable discussion and speculation. Farmers, agribusinesses, policy-makers, public interest groups, educators, researchers and investors—all need reliable information on organic agriculture to make informed decisions about business strategies, teaching and research agendas, and institutional policies. Statistical analyses of organic farming contribute crucial information for these decisions. This AIC Issues Brief provides data on organic agriculture in California, drawing on a larger report prepared in collaboration with the California Department of Food and Agriculture (CDFA). The data used here resulted from requirements of the California Organic Foods Act (COFA) of 1990. The purpose of COFA was to standardize the use of the word “organic” as a marketing label and to put standards and procedures into place to regulate the production, processing and handling of organic products. As part of these regulations, COFA requires registration with CDFA of all growers and handlers of commodities marketed as organic. Data from the registration forms during the first three years of the program (1992-93, 1993-94, and 1994-95) are presented here. This is information as reported to CDFA, and should be viewed as best estimates taking into account possible limitations in the data. (See “Data Clarification and Limitations.”) Data are summarized here separately for “registered” organic farms (and handlers) and for “certified” organic farms. Numbers in the registered category include certified farms, but organic certification is separate from, and is not a substitute for, state registration. Registration is regulated by state law and is mandatory. Certification is through private organizations and is voluntary. Virtually all large-scale organic farm operations in California are certified as well as registered, while many small ones are not. Certification requirements will change when standards to regulate organic agriculture on a national scale are developed under the federal Organic Foods Production Act of 1990 (OFPA). Federal regulations have been “in process” since 1990 and it is not clear when they will be finalized. However, the legal definition of organic agriculture, as well as its proposed practices, are currently generating considerable attention. (See final section, “Impacts of New Regulations.”) For both the registered and certified categories in this report, California is divided into seven geographical regions based on those used by CDFA. Also, the principal commodity groups used by CDFA in reporting annual statistics are used here—with the exception that we added a combined fruit-nut-vegetable group, since some growers reported their production in a manner that made it impossible to separate their acreages and sales into separate commodity groups.
DATA CLARIFICATIONS AND LIMITATIONS
Any registration process requires only limited information. Therefore, some features of California’s organic agricultural industry are not reflected by data in this report. For example:
- There are undoubtedly growers who produce organically but have no interest in labeling or marketing their crops as organic. They are not required to take part in CDFA’s Organic Program, and are not included here. This group could include relatively small to medium-sized growers who have developed a marketing relationship with their clientele that is based on mutual trust and does not rely on organic labeling to verify production methods. This group could also include growers using organic methods because of concerns about environmental impacts or farmworker safety, but who do not see a marketing advantage in selling their crops as organic per se.
- Some industry experts believe that only about 30 to 40% of all production by growers actively participating in the organic market is actually sold as organic. The remaining portion is thought to be sold through conventional channels and may not be reported as organic sales by producers.
- Some growers who appear to be “small” or “medium-sized” organic farmers based on the information on their registration forms may actually be larger operators experimenting or diversifying with some organic acreage.
- Registrants grossing over $5 million annually are not obligated to report any sales above that amount. Therefore, the total value of production is probably underestimated in the data because income realized by some high-revenue producers and handlers is not fully accounted for.
INDUSTRY TRENDS, 1992-93 to 1994-95
During the three years of the study, as shown in Table 1:
- The number of registered organic farms increased from 1,157 to 1,372 for a total gain of 19%.
- Registered organic crop acreage increased from 42,302 to 45,070, a more modest gain of 7%.
- Value of production for registered growers went up from $75.4 million to $95.1 million, posting an overall gain of 26%.
Table 1. Registered Organic Agriculture as Reported to CDFA, 1992-95
|Year||Number of Farms||Total Crop Acres||Total Gross Sales ($)|
In contrast, during the same three years, the number of registered growers who were also certified declined 2%, from 527 to 517. However, certified acreage increased 7%, from 34,679 to 37,110, and certified gross sales increased 30%, from $65.9 million to $85.6 million. Some concentration in the certified sector was evident, as fewer growers farmed more acres. Although certified organic farms represented less than half of all registered organic farms, they accounted for more than 80% of the registered acreage and about 90% of the value of production.
The expanding market for California’s organic production suggests an industry with improved production efficiency, enhanced consumer demand or both. Note that gross sales increased at a greater rate than the number of acres farmed organically—indicating that revenue increases were not simply the outcome of acreage expansion alone. Growers may have become more proficient in organic production methods, and in business and marketing strategies. Increased consumer demand also may explain the considerable increase in sales value.
Organic Commodities. Every major farm commodity group is represented in the data—more than 70 individual commodities in each year. However, the relative importance of commodity groups to total sales value within the organic industry differs from the state’s agriculture as a whole. Most notably, vegetable crops are much more important to organic sector sales than to total agricultural sales in the state (57% versus 23% in 1994-95). At the other extreme, field crops, livestock, poultry and related products generated only 4% of organic sales, but over 40% of total farm value. Vegetable crops, and fruit and nut crops are the commodity groups of most consequence for organic agriculture in California. These industries have the largest number of farms, the largest acreage, and by far the largest gross revenues. During the three-year period, they generated 95% of the total value of organic production from approximately 80% of the state’s registered acreage (Table 2).
Table 2. Value of Production for Registered Organic Growers by Commodity Group
as Reported to CDFA, 1992-95
|Year||Vegetable Crops||Fruit & Nut Crops||Combined Fruit, Nut & Vegetables*||Field Crops||Nursery & Flowers||Livestock, Poultry & Products|
*This category includes farms for which reported sales are aggregated fruit, nut and vegetable sales.
Looking only at crop production (excluding livestock, poultry and related products) in 1994-95, 1,363 registered organic farms in the state reported almost $95 million in sales from almost 45,000 acres. This accounted for less than 1% of the total value of crop production in the state. However, organic production generally has exceeded the state’s rate of yearly increase in total agricultural value.
Vegetable crops were the single most valuable organic commodity group, accounting for at least half of the state’s gross sales from approximately one-third of the registered acreage each year. During 1992-95, vegetable crops posted only a 4% increase in the number of producing acres, but a 46% increase in total sales—suggesting a shift in products grown, considerable gains in production or marketing efficiency, and/or increased consumer demand. In comparison, fruit and nut crops received about one-third of the state’s total organic sales value from almost half of the registered organic acreage. During 1992-95, fruit and nut crops recorded a 7% increase in acreage, but an 8% decline in overall value of production.
Field crops, though of considerably less value to California’s organic industry than vegetables or fruit and nut crops, nonetheless recorded a 28% increase in sales during 1992-95.
Geographical Distribution of Organic Acreage and Crop Value. Vegetable crops predominated in the Central Coast/Bay Area, the San Joaquin Valley and the South Coast regions. Fruit and nut crops were particularly important in the San Joaquin Valley and North Coast regions, and field crops in the Sacramento Valley.
During 1992-95, the San Joaquin Valley claimed the largest number of registered organic acres of any region, with about one-third of the state total. The Sacramento Valley was second with approximately one-fourth of the total acreage, followed by the Central Coast/Bay Area region with roughly one-sixth of the total.
During the three-year period:
- The San Joaquin Valley recorded a 12% decline in revenue from the first to the third year of registration, dropping to $23.6 million in 1994-95, with a 3% decline in acreage, but roughly the same number of growers.
- The Central Coast/Bay Area region showed over 69% growth in revenue, moving from $17.8 million to $30 million. At the same time, total acreage increased 11%, with grower numbers increasing by 5%.
- In the Sacramento Valley, the value of production increased by 28%, climbing from $6.8 million to $8.7 million, while acreage declined by 4%. The total number of growers stayed essentially the same.
- In the South Coast, the number of growers and total acreage grew by about 43% and 42%, with a corresponding 29% increase in total revenue. Sales were $13.8 million in 1994-95.
During the three years of the analysis, all regions demonstrated considerable growth in gross revenues except the San Joaquin Valley. Nevertheless, that region, with the second highest total revenue in 1994-95 and the largest organic acreage, clearly remained a major contributor to the state’s total organic sales and to overall organic agriculture.
Farm Numbers. Size, Sales. During the three years of analysis, average acres per registered organic farm decreased by 10%, while sales per acre went up 18%—resulting in an average increase in sales per farm of 6%. In crop categories:
- The number of registered organic vegetable farms decreased 6% from 405 to 383, while average acres per farm went up 14% from 36 to 41, and sales per acre increased 40% from $2,615 to $3,655. Average farm sales increased from $93,610 to $150,023, a phenomenal 60%.
- Fruit and nuts tell a different story, with the number of farms increasing 22%, from 800 to 974, but average acres per farm dropping 9%, from 24 to 22. In addition, sales per acre dropped 16%, from $1,749 to $1,504, and sales per farm decreased 27%, from $42,664 to $33,558.
- Field crop farms, comprising less than 2% of the total, nonetheless showed a dramatic increase over the three-year period in average farm sales, moving up 66%, from $62,483 to $103,987, along with a 7% increase in farm size from 196 to 209 acres. Sales per acre increased 57%, from $318 to $498.
In all three years, about two-thirds of all registered organic growers were located in one of the coastal regions, with the greatest concentration in the South Coast. Farms with the largest acreage were typically in the San Joaquin and Sacramento Valleys, and the South Eastern Interior. Regions with the highest average annual farm sales were the San Joaquin Valley and the Central Coast/Bay Area, which had the largest proportion of high-value vegetable and nursery and flower crops. In 1994-95, average sales per farm were $220,800 for the San Joaquin Valley and $148,365 in the Central Coast/Bay Area.
ACREAGE AND SALES DISTRIBUTIONS ACROSS FARMS
Most registered organic farms have few acres and small annual sales. In the third year of the program, 50% of all registered farms consisted of less than five acres, and grossed under $6,000. Because the two categories of vegetables and fruits/nuts represented 95% of all farms, their statistics were similar to the overall numbers:
- Half of all vegetable farms had three acres or less, with sales under $8,350.
- Half of all fruit and nut farms had five acres or less, and grossed under $5,000.
Not surprisingly, the midpoint size for farms growing field crops was larger, at 107 acres, with annual sales at $52,000.
Revenue from organic agriculture is highly concentrated. In 1994-95, as indicated by Figure 1, over half of the value of organic production was represented by the 2% of growers who grossed over $500,000 each. At the other end of the spectrum, growers grossing $10,000 or less comprised two-thirds of all growers and only 5% of sales.
Figure 1. Income Concentration for Registered Organic Growers as Reported to CDFA, 1994-95
The top revenue-generators were all certified, while those with the lowest sales frequently were not. This indicates that certification may be an important marketing tool for full-time growers with large sales volumes and little direct contact with consumers, and less important for part-time growers or those selling their product through direct marketing channels. It also may indicate that certification procedures and fees are a barrier for growers with low farm incomes.
These patterns suggest an industry with a predominance of very small part-time growers but also a substantial number of full-time growers.
PATTERNS OF ENTRY AND EXIT
Although the total number of registered farms changed very little from the first year of the program to the second (2% decrease), the numbers of new farms entering and leaving the program during that time were significant. Almost one-third of the original growers dropped out of the program in the second year, only to be replaced by almost as many new registrants. However, over 90% of the growers who registered in the second year continued in the third, and an additional 348 entered the program—resulting in a total of 1,372 registered farms in 1994-95 and a net increase of 215 growers over three years.
Various factors likely contributed to these entry and exit patterns. First, there was some incentive to register early in the organic program because only a one-year transition period was necessary at that time to change a farming operation from conventional to organic practices; a three-year transition period was planned for a later date. In addition, media attention directed to the perceived positive attributes of organic farming (pesticide use reduction, enhanced food and farmworker safety, environmental protection) influenced both consumer awareness and grower registration. Some growers undoubtedly registered at the program’s inception hoping to secure the higher prices that organic products often command. These prospective higher prices combined with potential on- and off-farm benefits provided an attractive farming option.
Although it is true that organically produced crops often command higher market prices, successful organic farming also requires development of new management skills and a significant level of commitment over time. There are a number of acknowledged challenges to farming organically, including lack of available information on organic production methods.
Because organic growers are prohibited from using many conventional inputs such as synthetic fertilizers and pesticides, the relative level of production risk for organic farming may be higher—especially during the transition years. The transition from conventional to organic can be particularly challenging for pest management, with some growers citing substantial crop losses.
Thus, costs of production for some organic crops may be higher than for their conventional counterparts. Also, annual crop growers have cited problems in finding suitable crops for their rotation schemes, and perennial crop growers in particular grapple with the dilemma of crop diversification in what are essentially monocropped systems.
Marketing is a separate challenge for organic food and fiber crop producers because markets may not have been well developed nor have the requisite grower/buyer relationships been adequately established. These challenges would have contributed to the grower attrition rates shown in the analysis.
During 1992-95 the total number of registered handlers of organic products decreased 9%, while handler sales value increased 56%. The Central Coast/Bay Area region had over one-third of the state’s handlers and about one-half of the total sales. The South Coast had another one-third of all handlers and accounted for over one-fourth of all sales. Fruit, nut and vegetable crops combined generated the highest revenues for handlers in all three years of the analysis, representing between 80% and 92% of the totals. Field crops claimed essentially all of the remaining sales.
IMPACTS OF NEW REGULATIONS
Current production and market indicators suggest that organic agriculture will continue to experience substantial growth. Perhaps more critically important to the organic industry at present, however, is the proposed rule of the USDA’s National Organic Program. Developed in response to the requirements of the Organic Foods Production Act of 1990, this proposal would set national standards and regulations for organically produced agricultural products—including certification of producers by accredited certification agencies. Published in the Federal Register on December 16, 1997 for public comment, the proposed rule has generated intense discussion, particularly on three key issues: whether to allow the use in organic production of (1) genetically modified organisms, (2) irradiation and (3) sewage sludge. (So much so that the public comment period was extended from March 16 to April 30, 1998.)
Of particular importance to organic producers and certification agencies is the issue of certification. The proposed rule states that producers with annual sales at or above $5,000 must be certified each year by an accredited certification agency. Fees would apply for both accreditation of agencies and certification of growers. These fees have important implications for growers with low sales and for certifiers without a large grower base from which to derive income.
In 1994-95, only about one-fifth of organic growers in California with annual sales of $10,000 or less, and one-half of growers with sales of $25,000 or less, were certified. In contrast, all organic growers grossing above $500,000 per year were certified. It therefore appears that, under the existing system, many small growers do not see the benefit of certification relative to the expenses associated with the certification process.
Thus, for growers who gross over $5,000 annually but nonetheless operate on a modest scale, the new federal requirement could prove a significant deterrent. These growers may respond to the certification requirement by dropping out of organic production altogether, or by forgoing certified organic production in a legal sense and instead marketing with another form of labeling related to production methods.
Likewise, some certification agencies may cease to operate. Others may pass most accreditation costs on to their producers. New certification agencies, perhaps catering to very small growers, may emerge. At this time, however, it is not clear how much attrition or entry of either growers or certification agencies might result from the impending federal law because it has not yet been finalized.
The registration data for the first three years of the organic program in California reveal considerable growth in terms of number of farms, acreage and farmgate sales. Farmer exit and entry patterns indicate substantial turnover in the organic sector, although it continues to grow. (In fact, CDFA estimates the current—1998—number of growers and handlers at 2,300, impressively higher than the 1994-95 number of 1,561.)
Implementation of the federal law, which will require certification of commodities marketed as organic, will undoubtedly serve as another catalyst of change. The evolution of the organic sector has broad implications for such nation-wide issues as food safety, viability of rural communities, resource conservation and environmental quality.
* The full report, published by the Center, is Statistical Review of California’s Organic Agriculture, 1992-1995, by Laura Tourte and Karen Klonsky. Tourte is a research associate and Klonsky is a specialist, both with Cooperative Extension, Department of Agricultural and Resource Economics, UC Davis.