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Why Isn’t More US Farmland Organic?

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  • Nicolai V. Kuminoff
  • Ada Wossink

Abstract

We develop a theoretical model to assess the dollar compensation required to induce conventional growers to convert to organic. The model incorporates the uncertainty in producers’ expectations about future returns and about the impact of policy changes on these expectations in particular. We demonstrate that a new policy which favours organic can have opposing effects on the rate of conversion. An increase in relative returns to organic today will increase conversion rates. However, if the future of the policy programme is uncertain, its introduction can increase the value of waiting to switch, which will decrease conversion rates. We then develop an empirical switching regression model that enables direct estimation of the value associated with being able to postpone the conversion decision until some of the uncertainty is resolved. The model is applied to data on organic and conventional soybeans before and after major changes in US farm policy toward organic growers. The results suggest that sunk costs associated with conversion to organic coupled with uncertainty about future returns can help to explain why there is so little organic farmland in the USA.

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  • Nicolai V. Kuminoff & Ada Wossink, 2010. "Why Isn’t More US Farmland Organic?," Journal of Agricultural Economics, Wiley Blackwell, vol. 61(2), pages 240-258, June.
    • Handle: RePEc:bla:jageco:v:61:y:2010:i:2:p:240-258
    DOI: 10.1111/j.1477-9552.2009.00235.x
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    6. Marco Migliorelli & Philippe Dessertine, 2017. "Time for new financing instruments? A market-oriented framework to finance environmentally friendly practices in EU agriculture," Post-Print halshs-02103991, HAL.
    7. Hermann, Daniel & Musshoff, Oliver & Agethen, Katrin, 2014. "I will never switch sides: an experimental approach to determine drivers for investment decisions of conventional and organic hog farmers," 2014 International Congress, August 26-29, 2014, Ljubljana, Slovenia 183084, European Association of Agricultural Economists.
    8. Schaffer, Axel & Duvelmeyer, Claudia, 2018. "Region-specific drivers and barriers of organic farming," 92nd Annual Conference, April 16-18, 2018, Warwick University, Coventry, UK 273482, Agricultural Economics Society.
    9. Mitchell, Paul D. & Rejesus, Roderick M. & Coble, Keith H. & Knight, Thomas O., 2010. "A Real Options Framework for Analyzing Program Participation as Human Capital Investments: The Case of the Average Crop Revenue Election (ACRE) Program," Staff Papers 92896, University of Wisconsin-Madison, Department of Agricultural and Applied Economics.
    10. Uematsu, Hiroki & Mishra, Ashok K., 2012. "Organic farmers or conventional farmers: Where's the money?," Ecological Economics, Elsevier, vol. 78(C), pages 55-62.
    11. Delbridge, Timothy A., 2013. "Threshold Effects in Transition to Organic Dairy Production," 2013 Annual Meeting, August 4-6, 2013, Washington, D.C. 150554, Agricultural and Applied Economics Association.
    12. Andow, D.A. & Resende Filho, M.A. & Carneiro, R.G. & Lorena, D.R. & Sujii, E.R. & Alves, R.T., 2017. "Heterogeneity in Intention to Adopt Organic Strawberry Production Practices Among Producers in the Federal District, Brazil," Ecological Economics, Elsevier, vol. 140(C), pages 177-189.
    13. Lee, Sangjun & Zhao, Jinhua & Thornsbury, Suzanne, 2013. "Extreme Events and Land Use Decisions under Climate Change in Tart Cherry Industry in Michigan," 2013 Annual Meeting, August 4-6, 2013, Washington, D.C. 150568, Agricultural and Applied Economics Association.
    14. Lauren C. Ponisio & Paul R. Ehrlich, 2016. "Diversification, Yield and a New Agricultural Revolution: Problems and Prospects," Sustainability, MDPI, vol. 8(11), pages 1-15, November.
    15. Marco Migliorelli & Philippe Dessertine, 2018. "Time for new financing instruments? A market-oriented framework to finance environmentally friendly practices in EU agriculture," Journal of Sustainable Finance & Investment, Taylor & Francis Journals, vol. 8(1), pages 1-25, January.
    16. Syster C. Maart-Noelck & Oliver Musshoff, 2013. "Investing Today or Tomorrow? An Experimental Approach to Farmers’ Decision Behaviour," Journal of Agricultural Economics, Wiley Blackwell, vol. 64(2), pages 295-318, June.
    17. Maack, Moritz & Maart, Syster Christin & Musshoff, Oliver, 2012. "The Impact of Price Floors -A Real Options Based Experimental Approach-," 2012 Conference (56th), February 7-10, 2012, Fremantle, Australia 124328, Australian Agricultural and Resource Economics Society.
    18. Eric Kiprotich Bett & David Michael Ayieko, 2017. "Economic potential for conversion to organic farming: a net present value analysis in the East Mau Catchment, Nakuru, Kenya," Environment, Development and Sustainability: A Multidisciplinary Approach to the Theory and Practice of Sustainable Development, Springer, vol. 19(4), pages 1307-1325, August.
    19. Hana Stojanová & Veronika Blašková & Michaela Lněničková, 2018. "The Importance of Factors Affecting the Entry of Entrepreneurial Subjects to Organic Farming in the Czech Republic," Acta Universitatis Agriculturae et Silviculturae Mendelianae Brunensis, Mendel University Press, vol. 66(4), pages 1017-1024.
    20. McFadden, Jonathan R. & Huffman, Wallace E., 2017. "Willingness-to-pay for natural, organic, and conventional foods: The effects of information and meaningful labels," Food Policy, Elsevier, vol. 68(C), pages 214-232.
    21. Froehlich, Anderson G. & Melo, Andrea S.S.A. & Sampaio, Breno, 2018. "Comparing the Profitability of Organic and Conventional Production in Family Farming: Empirical Evidence From Brazil," Ecological Economics, Elsevier, vol. 150(C), pages 307-314.

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