Midwest organic apples can be profitable
Sales of organic apples continue to climb; growth in the conventional apple market is flat.
xCan it really pay to grow organic apples in the upper Midwest in a climate that encourages diseases that are often difficult to control with organic material? A study commissioned by the Michigan Apple Committee says yes, but risk is involved and production costs vary greatly.
Through a value-added Michigan grant, the Apple Committee contracted with the Perishables Group to learn if the prices received for organically grown apples outweighed the higher production costs. The Perishables Group analyzed costs associated with converting to organic and identified organic acreage trends and organic price and sales trends.
"A simple running of the numbers shows that the premium for organic apples for the processed and fresh market, compared to conventional, is high enough to make it worthwhile," said Denise Yockey, executive director of the Michigan Apple Committee. "We can do it," she said, adding that the Apple Committee wanted to provide current data to the state's apple growers so they can make informed decisions.
Bruce Axtman of the Perishables Group presented the findings during the Great Lakes Fruit, Vegetable, and Farm Market Expo in Grand Rapids, Michigan.
Various studies of conventional and organic production costs show that organic costs can be 10 percent to 100 percent higher, depending on region, weather, and type and size of operation. "The best estimate we have is a range of around 40 percent higher, but that could vary dramatically one way or another," Axtman said.
He cited one study that estimated the cost of annual organic apple production at $2,857 per acre compared with $2,047 per acre for conventional.
The compounds used in organic production are not necessarily more expensive, said Axtman, but they must be applied more frequently to be effective (see "Organic pest control costs").
The labor and fuel associated with pesticide application also drive the cost up. Additionally, a lack of organic chemical thinning materials can increase production costs.
While production costs for organic are higher and yields are typically lower than conventional, the net revenue per acre can still be significantly higher for organic fruit, Axtman said.
Based on a scenario where a variety of organic materials was used to control pests, the net revenue for the organic block was $2,900 per acre and $2,300 per acre for the conventional block (see "Michigan production costs"). The scenario assumed that the packout in the organic block would be 20 percent less and production costs would be 40 percent higher than the conventional block.
Reliable statistics on organic and transitional acreage are not widely available, and are most often limited to information coming out of California and Washington State, Axtman said.
"The Washington Department of Agriculture contends that production has leveled off, but it is expected to realize a strong jump over the next few years due to increased market demand," he said.
Axtman estimated that there are between 7,000 to 8,000 acres of organic apples in Washington, according to the most recent statistics, with about 5 percent of the total Washington apple production grown organically. Gala accounted for 20 percent of the total certified organic acreage in 2005.
Organic apple acreage in California has declined in recent years, according to the California Department of Food and Agriculture, he said, adding that this is in line with an overall decrease in apple production in California.
Organic apple shipment prices reached an eight-year peak in the 2006–2007 season at an average of $29.27 per box, Axtman said. In the same year, organic Fuji apples were $32.72; organic Galas averaged $30.55; Honeycrisp averaged $62.38 per box.
Data collected by the Perishables Group show that total apple sales are stronger in the East North Central region of the United States than in the rest of the nation. The ENC region, comprising Michigan and surrounding states, has stronger average weekly apple sales, but organic apples contribute a smaller share of total apple sales compared to national trends.
Apple pricing trends showed a "very substantial gap" between organic and conventional retail prices in 2006. The average retail price for organic apples was $1.61 per pound compared with $1.29 per pound for conventional, he noted. A similar gap existed in f.o.b. prices, with the spread between conventional and organic Washington apples ranging from 23 cents to 35 cents per pound in the last three years, according to data provided by the Washington Growers Clearing House Association.
Axtman said that the trend for strong organic apple prices also carried through to the processor side of the market, with average prices for organic peelers in 2006–2007 pegged at $400 per ton and $350 per ton for juicers, according to the Growers Clearing House. Prices for conventional peelers and juicers averaged $150 per ton and $125 per ton, respectively. Conventional prices for the 2007 crop, as reported by the Michigan Processing Apple Growers, ranged from $5.25 per hundredweight to $13.75 per hundredweight ($105 to $275 per ton), depending on variety.
Will the pricing gap trends continue?
"Certainly, we don't know for sure," Axtman said. "But the trend is positive in that the price is headed up and the gap has stayed significant."
One national trend he highlighted is that market growth for conventional apples is flat, with zero growth in sales volume from 2005 to 2006, but organic volume increased nearly 24 percent in the same period. In terms of dollars sales in the same period, organic apples showed a 34 percent increase compared with an increase of 11 percent for conventional apples.
There isn't one right answer in deciding if organic is for you, he concluded, adding that too many factors and variables are involved in determining profitability. "I don't think it's a slam dunk to say that everyone should go out there tomorrow and start converting to organic, but the data collected shows there is a strong niche and opportunity for those growers who are inclined to move in this direction."