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Effect of yield and price risk on conversion from conventional to organic farming

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  • Acs, Szvetlana
  • Berentsen, Paul B.M.
  • Huirne, Ruud
  • van Asseldonk, Marcel

Abstract

Although the benefits of organic farming are already well known, the conversion to organic farming does not proceed as the Dutch government expected. In order to investigate the conversion decisions of Dutch arable farms, a discrete stochastic dynamic utility-efficient programming (DUEP) model is developed with special attention for yield and price risk of conventional, conversion and organic crops. The model maximizes the expected utility of the farmer depending on the farmer’s risk attitude. The DUEP model is an extension of a dynamic linear programming model that maximized the labour income of conversion from conventional to organic farming over a 10 year planning horizon. The DUEP model was used to model a typical farm for the central clay region in the Netherlands. The results show that for a risk-neutral farmer it is optimal to convert to organic farming. However, for a more risk-averse farmer it is only optimal to fully convert if policy incentives are applied such as taxes on pesticides or subsidies on conversion, or if the market for the organic products becomes more stable.

Suggested Citation

  • Acs, Szvetlana & Berentsen, Paul B.M. & Huirne, Ruud & van Asseldonk, Marcel, 2009. "Effect of yield and price risk on conversion from conventional to organic farming," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 53(3), pages 1-19.
    • Handle: RePEc:ags:aareaj:161974
    DOI: 10.22004/ag.econ.161974
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    File URL: http://ageconsearch.umn.edu/record/161974/files/j.1467-8489.2009.00458.x.pdf
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    References listed on IDEAS

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    Cited by:

    1. van Winsen, Frankwin & Wauters, Erwin & Lauwers, Ludwig H. & de Mey, Yann & Van Passel, Steven & Vancauteren, Mark, 2011. "Combining risk perception and risk attitude: A comprehensive individual risk behavior model," 2011 International Congress, August 30-September 2, 2011, Zurich, Switzerland 115749, European Association of Agricultural Economists.
    2. Uwe A. Schneider & Livia Rasche & Bruce A. McCarl, 2018. "Assessing the Economic Impacts of Pesticide Regulations," Agriculture, MDPI, Open Access Journal, vol. 8(4), pages 1-13, April.
    3. Ridier, Aude & Ben El Ghali, Mohamed & Nguyen, G. & Kephaliacos, Charilaos, 2013. "The role of risk aversion and labor constraints in the adoption of low input practices supported by the CAP green payments in cash crop farms," Review of Agricultural and Environmental Studies - Revue d'Etudes en Agriculture et Environnement (RAEStud), Institut National de la Recherche Agronomique (INRA), vol. 94(2).
    4. 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.
    5. Gandorfer, Markus & Pannell, David & Meyer-Aurich, Andreas, 2011. "Analyzing the effects of risk and uncertainty on optimal tillage and nitrogen fertilizer intensity for field crops in Germany," Agricultural Systems, Elsevier, vol. 104(8), pages 615-622, October.
    6. Uematsu, Hiroki & Mishra, Ashok K., 2012. "Organic farmers or conventional farmers: Where's the money?," Ecological Economics, Elsevier, vol. 78(C), pages 55-62.
    7. Mzoughi, Naoufel, 2014. "Do organic farmers feel happier than conventional ones? An exploratory analysis," Ecological Economics, Elsevier, vol. 103(C), pages 38-43.
    8. Chopin, Pierre & Doré, Thierry & Guindé, Loïc & Blazy, Jean-Marc, 2015. "MOSAICA: A multi-scale bioeconomic model for the design and ex ante assessment of cropping system mosaics," Agricultural Systems, Elsevier, vol. 140(C), pages 26-39.
    9. Ridier, Aude & Chaib, Karim & Roussy, Caroline, 2016. "A Dynamic Stochastic Programming model of crop rotation choice to test the adoption of long rotation under price and production risks," European Journal of Operational Research, Elsevier, vol. 252(1), pages 270-279.
    10. Yi Wang & Zhanguo Zhu & Feng Chu, 2017. "Organic vs. Non-Organic Food Products: Credence and Price Competition," Sustainability, MDPI, Open Access Journal, vol. 9(4), pages 1-23, April.
    11. Reidsma, Pytrik & Janssen, Sander & Jansen, Jacques & van Ittersum, Martin K., 2018. "On the development and use of farm models for policy impact assessment in the European Union – A review," Agricultural Systems, Elsevier, vol. 159(C), pages 111-125.
    12. Wauters, Erwin & De Cock, Lieve & Wit, Jan de & Lauwers, Ludwig H., 2011. "The foregone risk premium: a communicative and practical method for the evaluation of risk-return profiles in agriculture," 2011 International Congress, August 30-September 2, 2011, Zurich, Switzerland 115737, European Association of Agricultural Economists.
    13. Ridier, Aude & Chaib, Karim & Roussy, Caroline, 2012. "The adoption of innovative cropping systems under price and production risks: a dynamic model of crop rotation choice," 123rd Seminar, February 23-24, 2012, Dublin, Ireland 122440, European Association of Agricultural Economists.
    14. Luz Maria Castro & Fabian Härtl & Santiago Ochoa & Baltazar Calvas & Leonardo Izquierdo & Thomas Knoke, 2018. "Integrated bio-economic models as tools to support land-use decision making: a review of potential and limitations," Journal of Bioeconomics, Springer, vol. 20(2), pages 183-211, July.
    15. Saem Lee & Trung Thanh Nguyen & Patrick Poppenborg & Hio-Jung Shin & Thomas Koellner, 2016. "Conventional, Partially Converted and Environmentally Friendly Farming in South Korea: Profitability and Factors Affecting Farmers’ Choice," Sustainability, MDPI, Open Access Journal, vol. 8(8), pages 1-18, July.
    16. 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.
    17. Mzoughi, Naoufel, 2011. "Farmers adoption of integrated crop protection and organic farming: Do moral and social concerns matter?," Ecological Economics, Elsevier, vol. 70(8), pages 1536-1545, June.
    18. Chavez, M.D. & Berentsen, P.B.M. & Oude Lansink, A.G.J.M., 2014. "Analyzing diversification possibilities on specialized tobacco farms in Argentina using a bio-economic farm model," Agricultural Systems, Elsevier, vol. 128(C), pages 35-43.
    19. 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.

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