Can British farming go green?

Make British agriculture organic? The idea seems ludicrous. Imagine the grubby, worm-filled apples, the expensive meat, and the over-ripe tomatoes. Turning back the agricultural clock to set aside advances in fertility, pest control and intensive farming - it sounds like an economic disaster. Higher food prices, bankrupt farmers, rural job losses, an explosion in imports, and huge pointless subsidies from the taxpayer: all appear inevitable.

That's the conventional wisdom. But hang on a minute. There is, in fact, a considerable economic case for the restructuring of British agriculture along organic lines, in other words free of pesticides, chemicals and hormones, and involving humane animal husbandry. The markets, particularly after BSE, are emerging. Existing organic farms show that production can be viable. Our rivals in Europe are already ahead of us in spotting the opportunities. An overhaul of the official subsidy system could transform the cost basis of production.

For a start, British shoppers clearly want a certain amount of organic produce on the supermarket shelves. The Soil Association registers most of Britain's organic farms. According to its director, Patrick Holden, consumer demand is still growing. The power of the consumer protest against the risks of BSE shows just how strong the desire for healthy and safe food has become.

Yet British farmers have not been responding to domestic demand. Even before the BSE scare, they failed to provide the organic produce that consumers wanted. Around 70 per cent of organic produce in this country is imported, including vegetables such as carrots that we could easily grow at home. The result of this excess of demand over supply is that British organic food can often be sold at a premium, well above the cost of producing it.

Demand for organic food is even higher elsewhere in Europe. Britain could follow the Austrian example and aim deliberately for the top end of the huge European market. Given the current lack of confidence in Europe about British food, the future competitiveness of our agriculture may depend on a really radical attempt to redefine the "British" label as the safest and the greenest.

Expanding organic production to meet demand would generate further benefits. At the moment only 0.3 per cent of British farmland is under organic cultivation. Packaging and distribution for a few scattered organic farms is still relatively expensive, because the costs of the organic labelling cannot be shared between many farms. Once the industry reached a critical mass, farmers and consumers could benefit from considerable savings, and the price of organic goods would fall.

Other countries are converting to a greener type of agriculture faster than Britain. Germany, Austria, Denmark, Finland, Sweden, the Netherlands and Italy already have more of their farmland under organic production. In Austria, a remarkable 11.5 per cent of agricultural land is organically farmed. Land under organic production is doubling every year in Austria. In Germany it is rising by more than 50 per cent and in Italy by 140 per cent a year. The rate in Britain is just 11 per cent.

A move towards more organic farming here would be economic, even under the current system of subsidies, according to Lawrence Woodward, the director of the Elm Farm Research Centre, which produces business plans for farmers contemplating the organic conversion. Mixed farms which have both livestock and arable are, he says, best suited to organic production - particularly those which never entirely embraced the most intensive methods of modern industrial farming. Farmers are discouraged, however, by the novelty of organic farming and by uncertainty.

But the biggest obstacle to widespread organic farming in Britain is the structure of agricultural subsidies. Farming organically means using no artificial fertilisers. As a result, land needs to be left fallow, or filled with clover to rebuild the fertility of the soil. At any one time, an organic farmer is likely to have around half of his land lying fallow - missing out on direct subsidies from the Common Agricultural Policy of pounds 270 for every hectare under arable cultivation. The result is that the market is rigged against producing organic goods.

Other countries make an explicit attempt to compensate for the imbalance in CAP subsidies, drawing on the EU's AgricEnvironment budget to provide additional cash for organic farming. If the Government was serious about levelling the playing field, they could take a similar approach. A more radical strategy would be to renegotiate the CAP entirely and change the balance of subsidies across Europe.

It is easy enough to justify tipping the playing field in favour of organic production. Intensively produced food may be cheaper for the consumer in the shops, but there are costly side effects for society as a whole. Nitrates seeping in from fertilisers into the water supply need to be cleaned out by water companies - and push up water bills. The health risk from modern farming methods, feeding patterns and chemical use may go far beyond mad cow disease. Heavy taxation of agricultural chemicals would be one way to encourage farmers to use less.

But before going overboard, it is worth recognising what can really be achieved, at least in the short run. No matter how great the health scares, British shoppers are not about to convert en masse to an entirely organic diet. And why should we? While most of us would rather the food on our plate was no longer coated with thick layers of chemicals, we are still happy to take advantage of prudent use of modern scientific methods.

Furthermore, organic vegetables are ugly. Smaller, grub-filled, irregular, these are not the beautiful round shiny red apples that shoppers are quick to pluck from the shelves. It will also be hard to wipe out the British appetite for cheap meat. Last week at the height of the BSE scare, one supermarket reported more beef sold than in any day in their entire history: halving the price of steak had far more impact on customers' decisions than any comments by health experts. Although the price of lamb and beef would not go up considerably under organic farming methods, cheap chicken and pork would almost disappear. It is difficult to imagine British families cheerfully bidding farewell to the bacon butty or the grilled chicken drumstick.

The price of processed food that time-pressed families increasingly depend on would also soar. No more stopping at Tesco on the way home for a cheap Chicken Kiev or lasagne. Sticking within the household budget would still be perfectly easy on organic British food - but it would require a serious change in our diets and cooking habits.

Trying to capture the healthy end of the European market has disadvantages too. Britain lacks a comparative advantage in organic produce. It is less costly for smaller mixed farms on the continent to adapt than the massive arable farms of East Anglia.

Nevertheless, the case for expanding organic production in Britain is overwhelming. Consumers already want it, and demand is rising both here and abroad. An entirely organic nation is not yet on the cards. That will need a more dramatic change in consumer tastes. But it is time for the Government to think, as our competitors are, of creating a kinder fiscal regime for the organic farmer.