The African Financial Review July-August 2014 | Page 52

INDUSTRY
52 | The African Financial Review

Farmers in
developing
economies can
benefit from the
growing global
demand for organic
products
By Linda Kleemann

In this article, Linda Kleeman concludes that
there is a larger potential of the organic market
and hence the number of farmers in developing
countries who can potentially benefit from
growing organic products.

O

rganic market growth rates are around 10%, far higher
than those of conventional markets and supermarkets
have started offering organic food as part of their usual
range of products. Consumer demand for organic products is
concentrated in North America and Europe; these two regions
comprise 97% of global revenues (Willer and Kilcher, 2009).
Organically grown pineapple has also become more popular
among consumers. Like other tropical fruit, it is grown almost
exclusively in developing countries and like other organic
products, organic pineapple earns a premium price on the
market compared to conventional varieties. Hence, the shift from
conventional to organic production might be an opportunity
for small and middle-sized farmers to reap higher returns from
their investments. Since this change, however, requires costly
adjustments of production techniques as well as considerable costs
for certification, several aspects of organic production need to be
considered when trying to determine its profitability. Another
important aspect of profitability that has been disregarded in
the previous literature so far is the relation between the organic
market and the conventional one and its likely future development.
Besides a price premium for the organic product this includes the
co-movement of the two prices. In this paper we restrict our focus
to this price dimension of the profitability of organic production.

The willingness to pay (WTP) a higher price for organic
food based on perceived desirable characteristics has been welldocumented. The academic literature has shown the existence
of a, quite variable, price premium for organic food products
(e.g. Boland and Schroeder, 2002; Huang, 1996; Loureiro and
Hine, 2002; Thompson, 1998). We take a different approach
and deduct dynamic characteristics of the demand functions
from price behavior over time. Thereby we are able to provide