A Cost Comparison of Organic and Conventional Apple Production in the State of Washington

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 O’Rourke. 29 April 2013 Crop Management Published June 13, 2014