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

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Listed author(s):
  • 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.

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File URL: http://purl.umn.edu/161974
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Article provided by Australian Agricultural and Resource Economics Society in its journal Australian Journal of Agricultural and Resource Economics.

Volume (Year): 53 (2009)
Issue (Month): 3 (September)
Pages:

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Handle: RePEc:ags:aareaj:161974
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Keywords: arable farming; conversion process; dynamic utility-efficient programming model; organic farming; risk aversion; Agribusiness; Crop Production/Industries; Farm Management;

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  1. James A. Langley & Earl O. Heady & Kent D. Olson, 1982. "Macro Implications of a Complete Transformation of U.S. Agricultural Production to Organic Farming Practices," Food and Agricultural Policy Research Institute (FAPRI) Publications 82-wp9, Food and Agricultural Policy Research Institute (FAPRI) at Iowa State University.
  2. Lien, Gudbrand & Hardaker, J. Brian & Asseldonk, Marcel A.P.M. van & Richardson, James W., 2009. "Risk programming and sparse data: how to get more reliable results," Agricultural Systems, Elsevier, vol. 101(1-2), pages 42-48, June.
  3. Harwood, Joy L. & Heifner, Richard G. & Coble, Keith H. & Perry, Janet E. & Somwaru, Agapi, 1999. "Managing Risk in Farming: Concepts, Research, and Analysis," Agricultural Economics Reports 34081, United States Department of Agriculture, Economic Research Service.
  4. Pannell, David J. & Malcolm, Bill & Kingwell, Ross S., 2000. "Are we risking too much? Perspectives on risk in farm modelling," Agricultural Economics of Agricultural Economists, International Association of Agricultural Economists, vol. 23(1), June.
  5. Martin, Sandra, 1996. "Risk Management Strategies in New Zealand Agriculture and Horticulture," Review of Marketing and Agricultural Economics, Australian Agricultural and Resource Economics Society, vol. 64(01), April.
  6. G Lien & JB Hardaker, 2001. "Whole-farm planning under uncertainty: impacts of subsidy scheme and utility function on portfolio choice in Norwegian agriculture," European Review of Agricultural Economics, Foundation for the European Review of Agricultural Economics, vol. 28(1), pages 17-36, March.
  7. Richardson, James W. & Klose, Steven L. & Gray, Allan W., 2000. "An Applied Procedure For Estimating And Simulating Multivariate Empirical (Mve) Probability Distributions In Farm-Level Risk Assessment And Policy Analysis," Journal of Agricultural and Applied Economics, Southern Agricultural Economics Association, vol. 32(02), August.
  8. K. D. Cocks, 1968. "Discrete Stochastic Programming," Management Science, INFORMS, vol. 15(1), pages 72-79, September.
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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. 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.
  3. 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.
  4. 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.
  5. repec:spr:endesu:v:19:y:2017:i:4:d:10.1007_s10668-016-9800-0 is not listed on IDEAS
  6. 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.
  7. Uematsu, Hiroki & Mishra, Ashok K., 2012. "Organic farmers or conventional farmers: Where's the money?," Ecological Economics, Elsevier, vol. 78(C), pages 55-62.
  8. Mzoughi, Naoufel, 2014. "Do organic farmers feel happier than conventional ones? An exploratory analysis," Ecological Economics, Elsevier, vol. 103(C), pages 38-43.
  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. 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.
  11. Aude Ridier & Karim Chaib & Caroline Roussy, 2012. "The adoption of innovative cropping systems under price and production risks: a dynamic model of crop rotation choice," Working Papers hal-01208817, HAL.
  12. 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.
  13. 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.

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