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Why Isn't More US Farmland Organic?

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Author Info

  • 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. Copyright (c) 2010 The Authors. Journal compilation (c) 2010 The Agricultural Economics Society.

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Bibliographic Info

Article provided by Wiley Blackwell in its journal Journal of Agricultural Economics.

Volume (Year): 61 (2010)
Issue (Month): 2 ()
Pages: 240-258

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Handle: RePEc:bla:jageco:v:61:y:2010:i:2:p:240-258

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Web page: http://www.blackwellpublishing.com/journal.asp?ref=0021-857X

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Cited by:
  1. Delbridge, Timothy A. & Fernholz, Carmen & Lazarus, William F. & King, Robert P., 2011. "A Whole-Farm Profitability Analysis of Organic and Conventional Cropping Systems," 2011 Annual Meeting, July 24-26, 2011, Pittsburgh, Pennsylvania 103790, Agricultural and Applied Economics Association.
  2. Singerman, Ariel & Hart, Chad E. & Lence, Sergio H., 2011. "Revenue Protection for Organic Producers: Too Much or Too Little," Staff General Research Papers 33912, Iowa State University, Department of Economics.
  3. 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, Freemantle, Australia 124328, Australian Agricultural and Resource Economics Society.
  4. 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 Paper Series 547, University of Wisconsin, Agricultural and Applied Economics.
  5. L├Ąpple, Doris & Kelley, Hugh, 2013. "Understanding the uptake of organic farming: Accounting for heterogeneities among Irish farmers," Ecological Economics, Elsevier, vol. 88(C), pages 11-19.
  6. 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.

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