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Organic or conventional? Optimal dairy farming technology under the EU milk quota system and organic subsidies

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  • Breustedt, Gunnar
  • Latacz-Lohmann, Uwe
  • Tiedemann, Torben
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    Abstract

    This paper assesses the competitiveness of organic and conventional dairy farms under different milk market and organic farming policy scenarios. We use a DEA-based model to estimate for each policy scenario the sample farms' profit potential in both technologies. The model enables identification of a farm's optimal technology based on its input-output observations. The empirical analysis is based on the annual accounts of 1300 Bavarian dairy farms. Results indicate that approximately 69% (78%) of the organic (conventional) farms have chosen their optimal farming system. The remaining organic (conventional) farmers could increase their profit on average by roughly 6% (10%) by switching to the other technology. Abolishment of the EU milk quota results in a considerable decline in the number of sample farms for which organic farming is the optimal technology, suggesting that, ceteris paribus, organic dairy farms may lose competitive advantage with the deregulation of the EU's milk market regime in 2015. Organic maintenance payments more than double the number of farms with a higher earning potential in organic farming, but their effectiveness could decline when the milk quota is abolished.

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    Bibliographic Info

    Article provided by Elsevier in its journal Food Policy.

    Volume (Year): 36 (2011)
    Issue (Month): 2 (April)
    Pages: 223-229

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    Handle: RePEc:eee:jfpoli:v:36:y:2011:i:2:p:223-229

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    Web page: http://www.elsevier.com/locate/foodpol

    Related research

    Keywords: Organic farming EU milk quota Data Envelopment Analysis Organic subsidies;

    References

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    1. Gardebroek, Cornelis, 2002. "Farm-Specific Factors Affecting the Choice Between Conventional and Organic Dairy Farming," 2002 International Congress, August 28-31, 2002, Zaragoza, Spain 24890, European Association of Agricultural Economists.
    2. Bernhard Br�mmer & Thomas Glauben & Geert Thijssen, 2002. "Decomposition of Productivity Growth Using Distance Functions: The Case of Dairy Farms in Three European Countries," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 84(3), pages 628-644.
    3. Subal Kumbhakar & Efthymios Tsionas & Timo Sipiläinen, 2009. "Joint estimation of technology choice and technical efficiency: an application to organic and conventional dairy farming," Journal of Productivity Analysis, Springer, vol. 31(3), pages 151-161, June.
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    7. Dimara, Efthalia & Pantzios, Christos J. & Skuras, Dimitris & Tsekouras, Kostas, 2005. "The impacts of regulated notions of quality on farm efficiency: A DEA application," European Journal of Operational Research, Elsevier, vol. 161(2), pages 416-431, March.
    8. Offermann, Frank & Nieberg, Hiltrud & Zander, Katrin, 2009. "Dependency of organic farms on direct payments in selected EU member states: Today and tomorrow," Food Policy, Elsevier, vol. 34(3), pages 273-279, June.
    9. Tzouvelekas, Vangelis & Pantzios, Christos J. & Fotopoulos, Christos, 2001. "Technical efficiency of alternative farming systems: the case of Greek organic and conventional olive-growing farms," Food Policy, Elsevier, vol. 26(6), pages 549-569, December.
    10. Carlos D. Mayen & Joseph V. Balagtas & Corinne E. Alexander, 2010. "Technology Adoption and Technical Efficiency: Organic and Conventional Dairy Farms in the United States," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 92(1), pages 181-195.
    11. Madau, Fabio A., 2007. "Technical Efficiency in Organic and Conventional Farming: Evidence from Italian Cereal Farms," Agricultural Economics Review, Greek Association of Agricultural Economists, vol. 8(1), January.
    12. Charnes, A. & Cooper, W. W. & Rhodes, E., 1978. "Measuring the efficiency of decision making units," European Journal of Operational Research, Elsevier, vol. 2(6), pages 429-444, November.
    13. Doris Läpple, 2010. "Adoption and Abandonment of Organic Farming: An Empirical Investigation of the Irish Drystock Sector," Journal of Agricultural Economics, Wiley Blackwell, vol. 61(3), pages 697-714.
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    Cited by:
    1. Mercedes Beltrán & Ernest Reig, 2014. "Comparing conventional and organic citrus grower efficiency in Spain," Working Papers 1406, Department of Applied Economics II, Universidad de Valencia.

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