Business Case

 The Economic Viability of Agroecology

Critics of Agroecology often question the economic viability of agroecological farming practices and, by extension, of businesses engaged in the production, distribution, or sales of agroecological produce. They argue that Agroecology results in low yields, unquantified costs and risks, and thus lower profits.
Current evidence, however, points to the contrary; agroecological farming is economically viable and can be more profitable than conventional farming practices. Furthermore, agroecological practices can strengthen the resilience of agricultural businesses, fostering long-term, sustainable profitability.

The Economic Viability of Agroecology

We define economic viability as a state where agricultural businesses are both profitable – considering yields, prices and productivity – and resilient. To analyze the economic viability of Agroecology, we use four dimensions: Agricultural yields (mostly measured as agricultural production output per hectare) have been at the center of the agricultural policy debate. The value of the agricultural output, as the prices received per unit produces, is key to understand the revenues of an agricultural business. Revenues, in turn, need to be considered in context of the costs of production (e.g. land and labor), to give an idea of the total productivity as the ratio between agricultural input and output. Together, yields, prices and productivity are the key drivers of the profitability of any agricultural business. In addition, agricultural businesses aim to achieve a stable economic viability in the long-term. Long-term profitability highly depends on resilience, which requires a sustainable use of natural resources that form the very basis of agricultural production.

An overview of the conceptual framework of the economic viability of Agroecology is presented in the graph on the right. To learn more about a specific dimension, click on the pictures below.

The Economic Viablity of Agroecology © Tanja Carrillo (Biovision)

Success Factors and Barriers

Current evidence shows that Agroecology is an economically viable farming system and therefore a worthwhile business option. In the SWOT analysis (Strengths, Opportunities, Weaknesses, Threats) below, we outline several success factors and challenges that might help or hinder agroecological businesses, policy makers and other actors in reaping the economic benefits of Agroecology. These reveal possible entry points for actors looking to strengthen the economic viability of their own agroecological initiatives.

Strengths

In the long-term, Agroecology is more resilient to climatic shocks, extreme weather events, as well as pests and diseases.

Agroecology supports long-term sustainability as it maintains the natural resource base of agricultural production.

As Agroecology is knowledge-intensive, it is important for agroecological businesses to have low staff turnover, for instance by ensuring attractive working conditions.

Realizing price premiums for agroecological produce requires access to well-functioning markets. Sustainable business models can benefit by establishing direct links between consumers and producers, for example via digital solutions.

A solid and loyal costumer basis is key to sustainably increase revenues and profitability.

Weaknesses

Lack of capital at the outset may constrain agroecological business abilities to invest and grow.

In many cases, agroecological business face an uneven playing field as compared to other agricultural businesses. Political incentives for agroecological businesses are often lacking

It takes time for the full yield, productivity, and revenue benefits of Agroecology to materialize. Agroecological businesses hence need to establish their planning with a long-term perspective.

Opportunities

An increasing demand for sustainable and healthy produce is a key opportunity for agroecological business, yet the sustainability benefits of Agroecology need to be clearly communicated.

Investors seeking to attain social, economic and environmental impacts are one opportunity for agroecological business to establish robust and long-term financing.

Support for Agroecology and sustainable food systems is growing in global policy commitments and strategies, such as the Agenda 2030, The Paris Agreement (UNFCCC), and the Biodiversity targets (CBD), which can foster public and policy support for agroecological farming and businesses.

Threats

The access of agroecological business to investment and credits may continue to be constrained if impact investments remain comparatively small, and access to credits is difficult in the absence of suitable collateral.

Although the policy environment is somewhat improving for agroecological businesses, policies are likely to remain unfavorable and put agroecology at a disadvantage.

Existing policies and market structures favor large-scale enterprises, which predominantly practice conventional farming.

This could be a testimonial from one of our partners
Max Mustermann
Farmer

Key Messages

Profitability

Growing evidence suggests that Agroecology is profitable - in terms of yields, prices and productivity - and resilient. This objects the widely held notion that agroecological businesses are not lucrative and presents Agroecology as an economically viable business option.

Human Capital and Knowledge

While agroecological approaches can lower input costs, they make farming practices more knowledge intensive. Agroecology thus requires investing in human capital. Furthermore, creating an informed costumer base and establishing close links between consumers and producers is key.

Investment

For Agroecology to unfold its full potential of improving long-term revenues and strengthening the resilience of agricultural value chains, it needs to be matched by sustainable, long-term investment models that seek to deliver social, economic, and environmental value.

Policy Environment

Agricultural policies need to be transformed to create a policy environment that does not favor intensive food production but provides regulatory incentives and subsidies for sustainable farming practices. Agroecological businesses may benefit from forming strong networks and coalitions to advocate for policy changes and communicate their social, economic and environmental benefits to the broader public.

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