Published June 13, 2014

2013 Plant Management Network.

Accepted for publication 6 January 2012. Published 29 April 2013.

A Cost Comparison of Organic and Conventional

Apple Production in the State of Washington
Mykel Taylor, Assistant Professor, Department of Agricultural
Economics, Kansas State University, Manhattan, KS 66506; and
David Granatstein, Sustainable Agriculture Specialist, Center for
Sustaining Agriculture and Natural Resources, Washington State
University, Wenatchee, WA 98801

Corresponding author: Mykel Taylor. mtaylor@ksu.edu

Taylor, M., and Granatstein, D. 2013. A cost comparison of organic and conventional apple
production in the state of Washington. Online. Crop Management doi:10.1094/CM-2013-
0429-05-RS.

Abstract
Organic apple production expanded rapidly during the past decade due to strong
demand, new technology, and price premiums, which suggests it is profitable for
growers. No rigorous analysis of cost of production has been done to help project
profitability in the face of continued increase in supply. The data presented here
compare two methods of estimating cost of production and find that production of
organic apples in Washington State, the leading producer, is approximately 5 to
10% more costly than conventional production on a per-acre basis.

Introduction
Organic apple production expanded rapidly during the past decade,
reflecting increased consumer demand and new technology to control chronic
pests and problems (3,5). Organic apple acres in the United States nearly
doubled from 9,270 certified acres in 2000 to 17,626 acres in 2008 (9). As
organic apples have moved from a niche product to a commodity, there is
concern among growers and the industry about retaining a premium price that
can help cover the perceived additional costs and reduced yields with organic
production (4). The apple industry compiles detailed sales and price information
for organic and conventional apples (e.g., Washington Growers Clearinghouse),
but rigorous estimates of the cost of production are lacking.
A question facing the apple industry is just how profitable organic
production will be in the long run. What if price premiums shrink or disappear?
Will organic production continue or will it revert to conventional production?
Economic theory suggests that a price premium decline could result from an
increased supply of organic apples through either expanded production acres or
greater yields on existing acres. Price premiums attract more growers such that
in the long run the supply of organic apples will reach a level where economic
profits are driven to zero by declining prices. Table 1 displays projected prices
for Washington organic apples based on increased sales volume (6). The price
premium is estimated to drop to zero once organic apple sales reach 12% of total
Washington sales volume. During the 2009-2010 marketing year, organic apples
sales were 6% of total apple sales for Washington. The average price received
that year for all apples was $19.05 per 40 lb box (FOB) and $24.89 per box for
all organic apples. These prices and corresponding volumes are very close to the
values predicted by ORourke.

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 Table 1. Impacts of expanded organic apple shipments on price.
Organic shipments as percent of
all Washington apple shipments
Conventional
6% 8% 10% 12%
apple price
($/box)x Predicted organic apple price ($/box)

20.00 26.77 24.45 22.13 19.82

17.00 22.75 20.78 18.81 16.85

14.00 18.74 17.11 15.49 13.87

x
Prices are FOB. Source: O'Rourke 2009 (6).

This article summarizes cost of production data on organic versus

conventional apple production, for the state of Washington. The production cost
data are then used to determine the level of profitability for organic apple
production under different yield and price scenarios. This information will
enable the apple industry to better understand the long-term profitability of
organic production.

Cost of Production Estimates Using the 2007 ARMS

The first set of production cost data used in this study is from the 2007
Agricultural Resource Management Survey (ARMS) of United States apple
producers. This survey was conducted by USDA-NASS and is the first ARMS
survey to be conducted for a specialty crop. Individual apple producers were
interviewed to collect detailed information on their apple enterprises. The
survey was comprised of questions regarding production methods, inputs used,
yields, and itemized costs and returns, among others. The questions were all
asked based on the 2007 production year and interviews were conducted three
times, once during the growing season to determine if they were still in
production for the crop of interest and two subsequent times to gather costs,
returns, and production data after harvest and marketing of the 2007 crop.
Apple orchards in seven states were sampled in the survey (California,
Michigan, New York, North Carolina, Oregon, Pennsylvania, and Washington),
which represent over 90% of the apple production in the United States. In
addition to the primary sample of apple orchards, a subsample of organic
orchards was also included in the survey (8). The vast majority of organic
growers who responded to this survey were located in Washington. (For further
details on sample selection and survey design of the ARMS survey, refer to the
ERS site). Due to the limited response of organic growers in other states, a
comparison of production costs between organic and conventional orchards is
presented for Washington only.
A typical production cost or enterprise budget lists costs in two primary
categories: variable costs and fixed costs. Variable costs are defined as costs that
occur during a single production year and would not be incurred if production
was stopped for some reason. Examples of variable costs include fertilizer and
chemical (both the inputs and the labor for application), water and electricity
used for irrigation, and harvest labor and hauling costs. The fixed cost category
includes costs that are born by the farm whether they choose to produce in a
given year or not. Examples of these costs include interest payments on land and
machinery, depreciation, and property taxes. While these costs can be avoided in
the long run if the farm assets are sold, they must be paid in the short run
regardless of whether or not a crop is harvested.
The costs of production for both conventional and organic orchards are listed
in Table 2. The costs are grouped into categories within fixed and variable costs
and given on a per-acre basis. The conventional production costs are based on
121 orchards in the state of Washington with an average apple acreage of 218.5
acres. The organic production costs are calculated using a smaller sample of 31
organic Washington orchards that average 88 acres of apples. (Orchards with
less than 10 acres of apples were omitted from the sample used to calculate the

Crop Management 29 April 2013

 production costs.) The results of the ARMS survey suggest that, on average, the
cost of production for organic apples is $496.52/acre (9.5%) higher than the
costs for conventional production. The primary difference in costs appears to
come from labor costs, which average $357/acre more for organic apples. Based
on these data, which reflect a single growing season, the revenue from organic
apples needs to be high enough to cover an additional $497/acre for profitability
to be no different than it is for conventional apples.

Table 2. Production costs for conventional and organic apples from 2007 ARMS.
Production costs for all Production costs for all
conventional apples ($/acre)x organic apples ($/acre)y
Variable costs Variable costs

Labor 2,382.76 Labor 2,740.07

Chemicals & fertilizer 578.32 Chemicals & fertilizer 610.32

Maintenance & repairs 168.29 Maintenance & repairs 217.01

Fuel & oil 177.75 Fuel & oil 199.45

Irrigation/electric charge 142.69 Irrigation/electric charge 150.39

Custom work 69.07 Custom work 81.49

Crop insurance 49.15 Crop insurance 87.37

Other expenses 471.12 Other expenses 418.80

Total Variable Costs 4,039.15 Total Variable Costs 4,504.90

Fixed costs Fixed costs

Depreciation 414.44 Depreciation 492.98

Interest 162.65 Interest 246.45

Property & estate taxes 75.78 Property & estate taxes 82.67

Insurance (all farm) 67.32 Insurance (all farm) 48.25

Rent & lease payments 58.26 Rent & lease payments 17.28

Capital replacement 383.81 Capital replacement 305.40

Total Fixed Costs 1,162.26 Total Fixed Costs 1,193.03

Total Costs 5,201.41 Total Costs 5,697.93

x
Costs calculated from 121 orchards in the state of Washington.
y
Costs calculated from 31 orchards in the state of Washington.

Cost of Production Estimates: 2009-2010 WSU Enterprise

Budgets
One of the advantages of data collected from the ARMS survey is the level of
detail it provides to researchers. This detail facilitates a wide variety of analyses
and greatly expands our knowledge of what producers are doing and how they
make decisions for their orchard enterprise. A drawback of such a detailed
survey is that it is expensive to conduct and, consequently, does not occur
regularly. While a single year of data provides much insight, it may also have
been an unusual year for certain variable cost centers. Therefore, we consider an
alternative source of information on the costs of production for both
conventional and organic apples in Washington to provide a basis for overall
comparison.
The alternative sources are enterprise budgets published by Washington
State University Extension for conventionally (2) and organically (1) produced
Gala apples. The data used to create these budgets are collected in a very
different manner from the ARMS survey. Rather than taking a random sample
of both organic and conventional apple growers, a panel of growers with

Crop Management 29 April 2013

 extensive experience was selected to be interviewed jointly. First, the panelists
decided on certain characteristics for a block of Gala apples, including the
methods of production, rootstock, trellis structure, and other technologies that
would be employed. They subsequently decided on the costs that would be
typically incurred, based on the assumptions of the given block and their own
cost of production data. Rather than a survey of what growers are currently
doing and the corresponding costs, these budgets are meant to reflect the latest
developments in apple production and the full economic costs of both
establishment and full production of an apple orchard.
To capture the full economic costs of production, opportunity costs are
included in the budget. For example if the growers own the land, then they may
not report an interest cost for land in the ARMS survey. In the Washington State
University (WSU) enterprise budget, however, an interest cost is included to
account for either interest explicitly paid on a land loan or the opportunity cost
of using land that is owned outright in the production of apples. Other economic
costs that are included in the WSU budgets are those attributed to establishment
costs. For a grower to fully establish a 40-acre Gala block, they will spend
approximately $1 million dollars in the first year alone. Whether this is paid by
the grower in cash or a loan is taken out to fund the four years of establishing a
Gala block, an amortized cost needs to be included in the budget for either
explicit loan payments or the opportunity cost of cash used to pay for the
investment. Therefore, cost categories such as management cost (cost of owner's
time), interest on land, and amortized establishment costs are included in the
WSU budget, but are not necessarily going to appear in the ARMS cost data and
the per-acre costs will be substantially higher for the WSU budgets as compared
to the ARMS data.
The variable cost estimates from the WSU budgets for conventional and
organic Gala apples are shown in Table 3. These budgets indicate the per-acre
cost difference between organic and conventional production for Gala apples is
$462/acre or 4.3% greater for organic. Unlike the ARMS survey where labor
costs were very different between organic and conventional production, the
biggest difference in the WSU budgets is the additional $618/acre cost for
chemicals (pesticides and growth regulators) and fertilizers for organic
production. Based on the WSU budgets, organic growers would require
$462/acre more revenue than a conventional grower to be equally profitable
producing Gala apples.

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 Table 3. Production costs for conventional and organic apples from 2010-2011
WSU budgets.
Production costs for Production Costs for
conventional gala apples ($/acre) organic gala apples ($/acre)
Variable costs Variable costs

Labor 2,652.35 Labor 2,590.00

Chemicals & fertilizer 900.00 Chemicals & fertilizer 1,518.00

Maint., repairs, fuel & oil 485.00 Maint., repairs, fuel & oil 560.00

Irrigation/electric charge 100.00 Irrigation/electric charge 100.00

General farm labor 500.00 General farm labor 550.00

Crop insurance 86.52 Crop insurance 86.52

Other variable costs 927.60 Other variable costs 966.00

Total Variable Costs 5,651.47 Total Variable Costs 6,370.52

Fixed costs Fixed costs

Depreciation 403.87 Depreciation 363.47

Interest 819.90 Interest 850.40

Property & estate taxes 75.00 Property & estate taxes 75.00

Insurance (all farm) 50.00 Insurance (all farm) 50.00

Management cost 400.00 Management cost 400.00

Capital replacement 218.75 Capital replacement 250.00

Amortized establishment Amortized establishment
3,138.10 2,823.74
costs costs
Annual certification fee 0.00 Annual certification fee 36.00

Total Fixed Costs 5,105.62 Total Fixed Costs 4,848.61

Total Costs 10,757.09 Total Costs 11,219.13

Conclusion
The budgets shown in this study provide insight into the cost of producing
both conventional and organic apples in the state of Washington. Comparing
costs from the 2007 ARMS survey and the 2009-2010 WSU enterprise budgets
allows for a better understanding of the range of costs that growers face in the
apple industry. The nature of the ARMS survey is such that certain economic
costs may not be captured and the single year snapshot may alter the average
costs if some orchards faced unusual production or management circumstances.
The WSU budgets are more comprehensive in the inclusion of all economic
costs, but also assume a high level of production and management. Therefore,
the per-acre costs should be considered a plausible range for apple production,
with the ARMS data providing a lower bound and the WSU budgets an upper
bound.
The comparison between organic and conventional costs of production is
similar, regardless of the data source used. It appears that the per-acre cost of
producing organic apples is approximately 5 to 10% greater than conventional
apples, at least for the state of Washington. This result may not hold for other
growing regions in the United States, especially those prone to different disease
and pest problems. Growers in the semi-arid region of the western United States
face less daunting pest and disease problems than growers in more humid
regions. With estimates of the cost of production for both organic and
conventional apples, it is possible to estimate profits to growers. Table 4 displays
the projected profit per acre for several different price and yield scenarios.
Previous research has suggested that, on average, organic growers will produce
approximately 10% less per acre then their conventional counterparts (4). The

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 profit sensitivity analysis presented here accounts explicitly for yield differences
between organic and conventional apples. We do not assume a quality
difference. This is based on previous research which found no significant
difference in fruit quality between organic and conventional apples (7).
Assuming this yield difference and a $50 per bin price premium for organic
apples, the sensitivity of profits to variability in yields and price appears to be
similar for organic and conventional orchards. Either production method can
yield a loss if either prices or yields (or both) are low enough. As an example, if
prices were to be $300 per bin for both organic and conventional apples, a
conventional grower would benefit from higher yields and be profitable. Organic
growers would be more susceptible to a negative profit due to lower yields.

Table 4. Profit Sensitivity of Organic and Conventional Apple Production

Conventional apple profit per acre Organic apple profit per acre
Yield
(bins/ Price ($/bin)x Yield Price ($/bin)
(bins/
acre)y 200 250 300 acre) 250 300 350
40.0 -2,757.09 -757.09 1,242.91 36.0 -2,219.13 -419.13 1,380.87
45.0 -1,757.09 492.91 2,742.91 40.5 -1,094.13 930.87 2,955.87
50.0 -757.09 1,742.91 4,242.91 45.0 30.87 2,280.87 4,530.87
Total Total
z 10,757.09 $/acre z 11,219.13 $/acre
cost cost
x
Price at the door of the packing house, including transportation from orchard to
packing house. Price is after packing, storage and other charges have been
taken out.
y
Assumes a packout of 18 fresh packs per bin (all grades) and bin size of 925
pounds. Organic apple yield is assumed to be 10% less than conventional.
z Total cost per acre from the WSU enterprise budgets for Gala apples. Assumes
full economic costs, including amortized establishment costs.

To answer the industry's question of the long term profitability of organic

apple production, organic apples grown in Washington are not considerably
more expensive to produce than conventional apples. However, profits are a
function of both costs and revenue. As shown in Table 4, if either prices or yields
are low enough, profitability for both organic and conventional apple growers
can be negative. Under a scenario of no price premium for organic apples,
profitability will be comparable to conventional productions if yields for organic
apples are also comparable.

Literature Cited
1. Galinato, S., Granatstein, D., and Taylor, M. 2011. 2010 cost estimates of establishing
and producing organic Gala apples in Washington. Coop. Ext. Factsheet FS041E.
Washington State Univ., Pullman WA.
2. Gallardo, K., Taylor, M., and Hinman, H. 2010. 2009 cost estimates of establishing
and production Gala apples in Washington. Online. Coop. Ext. Factsheet FS005E.
Washington State Univ., Pullman WA.
3. Granatstein, D., Kirby, E., and Willer, H. 2010. Organic horticulture expands
globally. Chron. Hortic. 50(4):31-38.
4. Granatstein, D., Lehrer, N., and Lapierre, M. 2011. Organic orchards: Needs and
priorities. Online. Survey conducted at Wilbur-Ellis organic grower meeting, Feb.
11, 2001, Prosser, WA. Tree Fruit Res. & Ext. Center, Washington State Univ.,
Wenatchee, WA.
5. Kirby, E. and Granatstein, D. 2008. Status of organic tree fruit in Washington State,
2008. Online. Center for Sustaining Agric. and Natural Resources, Washington
State Univ., Wenatchee, WA.
6. ORourke, D. 2009. Will the organic apple gamble pay off? Proc. of the 104th Annual
Meeting 2008. Washington State Hortic. Assoc., Wenatchee, WA.
7. Reganold, J. P., Glover, J. D., Andrews, P. K., and Hinman, H. R. 2000.
Sustainability of three apple production systems. Nature 410:926-930.

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 8. Slattery, E., and Greene, C. 2009. Results from the 2007 USDA apple survey:
Production characteristics. Online. Organic Agric. Briefing Room, USDA-ERS,
Washington, DC.
9. USDA. 2000-2008. Organic production datasets. Online. USDA-NASS, Washington,
DC.

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