Skip to content Skip to footer

Are Organic Businesses Profitable?

Are Organic Businesses Profitable

You may think that businesses care for profits and that businesspeople are greedy and unethical. Over the years and coming to today, this narrative sounds false. Yes, capitalism has its critics that are the first to point fingers at every bad business example.

However, we should not be delusional because times are changing. For every “bad” company that exists out there, there are thousands of other “good” companies. A good company possesses an ethical compass that instead of focusing on profit maximization instead focuses on making the world a better place.

Nevertheless, this does not mean that we should undermine profits. On the contrary, profits are equally crucial with corporate responsibility because businesses are not sustainable without them.

Now you must be wondering, is it easy to be an ethical, sustainable company and profitable at the same time? To answer this question, we are going to use the example of organic food businesses.

What are Organic Food Businesses

Organic food is traditionally grown food without the use of toxic chemicals such as herbicides and pesticides. Typically, those chemicals are found on the bodies of conventionally grown food and are believed to be harmful to our health. However, it is not only health concerns that spearheaded the increase of organic food production worldwide but also nutritional and environmental.

Some of the benefits of organic food are:

  1. More nutritional food. Studies have shown that organic food contains more vitamins and minerals than its conventional counterparts.  
  2. Better taste. Healthy soil produces better crops. Also, organic food cares more about nutritional value than appearance and therefore uses different varieties.
  3. No GMO. Genetically modified organisms (GMO) have already entered the food chain for decades. Despite their usefulness, we have not yet concluded on the result of GMOs on our health.
  4. Ecosystem preservation. Using fewer pesticides and herbicides and crop rotation preserves the soil and maintains a balance in the ecosystems.
  5. Less pollution. The use of agricultural chemicals in conventional farming pollutes the soil and our water supplies.  

However, becoming an organic business is no easy task. Organic businesses need to be certified first as such by following a process of three years without using any chemicals. Abstaining from chemicals means there is more manual labor to be done, like weeding. The extra demand in labor leads to increased costs coupled with fewer production yields. This burdensome process in labor and money deters many entrepreneurs who wish to create an organic food business.

Sustainability and Profitability

There are many cases of successful sustainable companies that have embraced a proactive role in social responsibility. According to researchers, there is room for profit in organic farming, but it requires much effort. How exactly do organic businesses operate and gain money if they have lower yields and extra labor costs?

As expected, the cost of buying an organic product is higher than buying its conventional counterpart. This is bad news for organic businesses worldwide, especially when it narrows down to price-conscious consumers. Nevertheless, many consumers are willing to pay a premium of about 30% to buy an organic product. In other words, they prefer to pay a little extra for better quality products and environmental protection.

This premium price covers both the costs of the whole production cycle and the costs incurred from the production losses. Loss of production is calculated to approximate 20% of the total yield. Overall, the difference in the profitability of organic farmers to conventional ones is between 22%-35%.

But if this is true, why aren’t there more organic farmers? I will explain by referring you back to the part of this article where organic certification is mentioned. An organic farmer can only be profitable through the extra money or premiums consumers pay for these products. However, lacking the organic certification (it’s a three-year process), you cannot market your products as organic; thus, you sell at a lower price and a loss.

For precisely this reason, the European Union provides incentives to farmers to invest in organic farming.

Institute of Entrepreneurship Development (iED) is a partner to the Erasmus+ consortium ROSE that promotes sustainable practices and help organic businesses to succeed.

To learn more about ROSE partnership and how it helps organic businesses grow, click here.

Go to Top