Green-growth policies and economic effects: lessons learnt from organic farming in the Czech Republic

Abstract

This chapter discusses the findings of research investigating the comparative economic performance of organic farms and conventional agricultural holdings in the Czech Republic. The system of organic farming has become an important component of the ecology-friendly alignment of agriculture in the Czech Republic. This system has extended extremely fast in the past fifteen years and it was stimulated to a large extent by state interference and the increase of subsidy payments, especially after the Czech Republic joined the European Union. A weak point in organic farming in the Czech Republic is its low productivity. In the period 2001 through 2012 organic farming (OrgF) holdings reached 30–40% of the value of agricultural production per ha of that achieved by conventional farming (CoF) holdings. Although OrgF operate with 50% of the inputs per 1 ha of CoF holdings, the overall material and labour demandingness of production is 1.4–1.7 times higher than that of CoF holdings—giving rise to the concept of “ecological paradox”. In effect this suggests that, OrgF holdings create a 1.5 times greater adverse ecological footprint per capita food production. Excluding operating subsidies, OrgF holdings reported a loss of 11,000 CZK per ha, which is twice that reported by CoF holdings. Subsidy payments during 2010 through 2012 amounted to 14,400 CZK/ha for OrgF holdings and 8,500 CZK/ha to CoF holdings. This interference has modified profit making. OrgF holdings, therefore, recorded slightly higher profit per ha and twice the profit per unit of the product when compared to CoF. Subsidies, therefore, represent the main financial source of stability in the financial management of organic farm holdings. Market prices of organic products from OrgF holdings contribute very little to cover higher costs of production. It is mainly caused by the nature of current price transmission in the food commodity chain, which leads to a redistribution of profit away from agricultural producers towards processors and, in particular, retailers. The increase of the contribution of operating subsidies to cost recovery and profit creation together with the development of subsidies per unit of product and per worker (AWU) in OrgF emphasizes the need for further development of the policy strategy for this type of farming. This should include new innovative thinking on improving management techniques, mechanisms for and changes to subsidy structure, particularly in relation to the balance in the market for organic products and income parity. Analyses of the economic aspects of organic agriculture (completed in this study) challenge agrarian policy thinking through highlighting the problem of the economic sustainability of organic farming holdings.