The amount and extent of private investment plays a major role in the growth and success of any commercial sector. Organic agriculture is no exception to this economic reality.
Investment in Conversion
This is particularly true for the conversion process. Conversion to organic farming can be costly in terms of initial investments such as new machinery, the adaptation of livestock facilities, integration of on-farm processing facilities. Organizational investments are also needed for example to set-up internal control systems for smallholder group certification.
Additionally, another form of “investment” is required during the transition period in the sense of building soil fertility and recovering from the initial yield drop. These factors can absorb much needed financial resources at a time where investments also need to be made in the future of the farm. Thus, supporting farmers with these investments can play a major role in facilitating a successful transition.
Policy support for organic farm investment is possible at any stage of development of the organic sector. It is easier when there is already a clear legal definition of organic i.e. an organic regulation or a legally referenced organic guarantee system. If this is not the case, governments can reserve investment support for operators that have obtained/requested organic certification, or support certain types of farm investments which are known to be particularly useful for organic operators, such as mechanical or thermal weeders, mesh nets, compost turning machines etc.
Here are some of the routes policy can take.
1. Organic Farm Conversion
A onetime support using outright grants, cost reimbursement, or low-cost loans can be given to farmers for the duration of conversion until they attain organic certification.
2. Organic Farm Improvement or Expansion
Organic farmers are entitled to apply to the government for financial support for equipment to:
- Improve their operation e.g. to update old facilities and equipment or undertake a new farming practice such as on-farm composting.
- Expand and diversify their operation e.g. produce new crops or livestock requiring new equipment and facilities investment.
Putting Policy into Action
Let’s look at some examples from around the world.
A scheme of grant aid for the development of the organic sector provides investment support for organic farmers and processors. The scheme covers up to 40% of the cost to a maximum grant of EUR 60,000 for on-farm investments or EUR 500,000 for off-farm investments.
At the federal level animal housing investment grants are linked to animal welfare provisions, which is more favorable to organic producers as the animal welfare conditions are close to those in the organic regulation. Producers can get up to a 40% grant for this investment. Additionally, some German regions have support schemes reserved for organic farm investments. For example, the region of Thüringen has a program – Ökolnvest – reserved for organic farmers, under which eligible investments can receive a subsidy of up to 40% to a maximum of EUR 800,000 per farm during the period 2015 – 2020.
Organic farmers can receive loans with 50% interest rate cut.
By decree, equipment specific to organic farming has been subsidized by 30% since 1994.
Several local governments have supported organic farm investments. For example, in 2010, Chengdu, the largest city in Southwest China, introduced financial supports for infrastructure investments such as building greenhouse facilities and road access for organic farms. The local governments of Shanghai and Beijing also have such support.
An exclusive credit line for organic agriculture (called PRONAF-Agroecologia) was launched in 2013. Under this program, interest rates are set at 2,5 % whereas rates offered to conventional operations are about 7%. There is a maximum limit of EUR 82,000 per individual farmer or EUR 206,000 for collective projects (machinery in cooperatives, etc.).
Various cantons supported organic farm investments, particularly those linked to the conversion to organic farming. This has been done in various ways depending on the cantons. The Jura canton gives financial aid in the form of an interest-free loan of about EUR 36,500 – reimbursable over eight years- for the farming enterprises that begin their business directly as organic or want to convert to organic.
Cyprus, Latvia, Estonia and Slovakia
These countries have given additional points to organic farmers in the criteria for access to the farm investment grants.
The province of Quebec makes financial support available to farmers for up to 50% of the cost of building or adapting livestock facilities for organic production, to a maximum of EUR 13,000. Additionally, under a program of support to diversification and regional development, operations opting for organic farming are eligible for reimbursement of interest on a capital loan for a period of 3 years. This support can represent a benefit of up to EUR 10,000 per company.