Summary
Whether you like it or not, organic farming is based on sound science. Nutrient values, drought resistance, resistance to wind damage and heavy rain damage make it less risky than biotech or conventional crops. This farm side argument, coupled with the built in low use of petroleum based inputs, and locally grown buyer philosophy add up to a sound investment in times of trouble. Steady growth of 20% for the past 20 years has attracted market attention. More attention will be paid as carbon cost and water cost is added into the base price of food.
Analysis
Organic food was traditionally grown in deep soil, with little additional fertilizer added other than compost teas and compost. Over time the soil becomes a sponge for water leading to fantastic survival rates in low water areas. In addition deep soils have less erosion and therefore do not clog waterways and irrigation canals like traditional industrial farming does.
The additional costs of drought loss and erosion loss have been relatively low. As fuel prices, water prices and input prices rise, the cost difference between organic and conventionally farmed crops will decrease. The decrease will not be dramatic as organic still is undersupplied in most commodities.
Biotech companies can not create new events fast enough to catch up with environmental change. Current crops will see failure rates increase as they are designed for best case weather scenarios.
This failure rate is also being seen socially in developing countries where bioengineered seed has been introduced. This has caused organic production techniques to be reconsidered by governments.
If India and China are held to higher standards for bioengineered seeds than the U.S. has been, a push-back can be expected as early as Spring 2009.
Look for organic prices to remain steady until Fall 2008 and gradually increase as supplies dwindle into Spring 2009.
Look for a run up on organic seed prices as supply is extremely tight.
Analyses are solely the work of the authors and have not been edited or endorsed by GLG.
