Posts Tagged ‘efficiency’

The role of location economics in organic grassland farming

13. Oktober 2016

Durchschnittliche Technische Effizienz in 15 Produktionsclustern von ökologischen Futterbau-Betrieben in Deutschland (Quelle: eigene Berechnung)

Average technical efficiency in 15 production clusters of organic grassland farms in Germany (source: own calculations)

We analyze the efficiency of organic pasture farming in Germany using data from 1994/95 to 2005/06. Five inputs and one output are analyzed by means of a stochastic frontier production function, allowing for heteroscedasticity and technical effects. Five sets of possible determinants of technical efficiency are considered in the model. These include: (1) farm structure and resources; (2) human capital and management capacities; (3) institutional choice; and (4) subsidies. To these factors that are commonly included in technical effects models, we add (5) a set of variables that capture localization and urbanization economies such as the share of organic farms in a region and the regional share of votes for the Green Party in recent elections.

These regional effects are found to have a significant impact on the technical efficiency of organic farms. We have identified 15 production clusters in Germany with different levels of efficiency. Interestingly, especially the southern clusters perform extremely well. In contrast to this, farms in northern and eastern Germany show lower efficiency level. There might be some shortcomings: Hessen, Mecklenburg-Vorpommern and Schleswig-Holstein are not represented in the data-set and in Eastern Germany has only few observations. In the context of Stochastic Frontier Analysis, we might also conclude, that the production frontier is mainly defined by rather small farms which can be found in Southern Germany. However, to our best knowledge, this is the first formal approach to investigate the relation of regional clusters and efficiency levels by a admittedly simple approach.

In our study we also investigate the evolution of efficiency on farms that are converting from conventional to organic farming. According to this result, the conversion period is longer than the usual 2 or 5 years, in which the federal states provide support for converting farms. After 6-11 years the average technical efficiency is substantially increasing almost reaching the average level of established farms. A conclusion might be, that farmers need to calculate with a longer adaptation period and from a political point of view, it might be appropriate to support 5 and not 2 years. But this has of course some trade-offs. And the literature also shows, that market-integration of converted farms is crucial for a successful conversion to organic farms.

Source: Technical efficiency of organic pasture farming in Germany: The role of location economics and of specific knowledge | Renewable Agriculture and Food Systems | Cambridge Core

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Efficiency and Productivity in Organic Farming – a Scientific Symposium at the ICAE in Milano

3. August 2015

On August 9th, 2015 starts the International Congress of Agricultural Economists (ICAE) in Milano, Italy. On Thursday, August 13, 11-12:30 o’clock (Malliani Room 70) we will discuss topics of efficiency and productivity of organic farming systems together with some of the most specialized and experienced scientists in the field.

Markets for organic farming have been constantly growing during the last twenty years, however, in some established countries like Germany, Austria or Denmark we can observe, that the number of farmers who convert to organic farming is stagnating or declining. In 2014, for the first time, the organic area in Germany has been slightly decreasing with a lot of press-echo. So journalists have already announced the organic crisis 3.0, which is a bit overdone from my point of view. But the fact is there and it might be interesting to discuss, why this is the case.

The scientific and public debate in Germany about the reasons for farmers being reluctant to become organic has been focused on the question, whether organic farmers are systematically disadvantaged on the land-markets, because their conventional neighbors might receive additional support for their biogas-plant. The debate is just ignoring, that not every conventional farmer has a biogas-plant, that the market for land are quite different among different regions. There is so far no empirical proof that problems on the land-market are a problem for all organic farmers. Also the system of subsidization of organic farms has been questioned. But if this would have been the main issue, the number of new organic farmers must have exploded in 2014, since almost all German federal states announced higher support rates for organic farming.

Organic barley production in Brandenburg

Organic barley production in Brandenburg

How about efficiency and productivity?

Productivity and efficiency is still not in the focus of the public crisis-debate (I don’t see a crisis, but that’s another issue…). Productivity in organic farming is not growing at the same pace like in conventional farming. Just a simple (and maybe even misleading) observation on the development of wheat-yields in organic farming might show what the topic is all about. The following figure shows the long-term development of wheat yields, yearly reported by the German test-farm network:

Yields of soft-wheat in organic and conventional farming 1986-2013 in Germany

Yields of soft-wheat in organic and conventional farming 1986-2013 in Germany (own calculations based on data from the German ministry for agriculture)

There are a few details on these data we need to consider, before we get too critical with organic farming as a system. 1.) Organic farming tend to work on less favorable locations and therefore achieve lower yields. So a part of the difference is a systematic difference. 2.) The data-set on organic farms have changed throughout the years: Especially in the years between 1994 and 2000 the data-set has been extended to East Germany, which substantially changed the sample. 3.) A lot of organic farms are milk- and grassland-farms, whereas in comparison to conventional farming, the share of arable farms is lower. This might explain the difference in wheat and it might also explain, why a similar graph for milk-yields looks much more parallel. But this is not the point here.

What is so striking, is the missing yield-growth of wheat! So if farmers convert to organic farming, they might face limits. Obviously the wheat-varieties do not grow to the same extent that in conventional farming. So one conclusion, without any discussion might be, that there is too little done in adjusting wheat-varieties to the system of organic farming. Breeding varieties is a costly and a very difficult business, therefore firms might sometimes be (too?) reluctant to work 10 years on new breeds for organic farming. So this might be a task for public support in science? According to Felix Prinz zu Löwenstein, chairmen of German Federation of the Organic Food Industry (BÖLW) innovation, research, development and extension is one of the main topics to further develop organic farming. So I hope we can contribute a bit to the topic. On the other hand, the lower yields come together with an good environmental performance. Do farmers have to accept lower yields because society wants environmental sound farming practices? How can we include the environmental dimension of organic farming into classical ag-economics modeling?

A symposium to bring together knowledge on organic farming

Organic farming relies more on natural resources and (as described above) is often less productive than conventional systems. The methods of efficiency and productivity analysis can provide important insights into the potential for improving the performance of organic farms. One main challenge is how we can do an appropriate comparison of the productivity of conventional and organic production systems. The challenge is how we can select data-sets that allow a clear comparison. The symposium gives an introductory overview on the main study-topics and presents three studies in the area: Technical efficiency might be also a driver for conversion, therefore this fact has to be included in the model-setup. Structural differences between conventional and organic farming should be taken in into account while modelling farm comparisons. Modelling-results can also be affected by price-effects. Finally, we want to include one study from Africa, since modelling organic farming in the tropics and subtropics might come with different challenges. At the end, we want to discuss the following five questions:

– What are the main conclusions from efficiency analysis?

– Where is a lack of data for further modelling

– What are methodological challenges.?

– Which are conclusions for agricultural policy?

– Where are links for interdisciplinary cooperation?

We will have the following topics on the schedule:

2) Introduction: Efficiency analysis of organic farming systems
– a short overview of topics, results and conclusions
 (by Sebastian Lakner University Göttingen & Gunnar Breustedt, University Kiel)

The introductory presentation provides an overview on the literature on efficiency and productivity of organic farming. We can distinguish between studies that aim to compare conventional and organic farming systems and studies that concentrate of specific problems of the organic sector. Sample selection issues are a major challenge in farm system-comparisons. The efficiency results are very heterogeneous depending from model set up, data set and background of the study. Some of the studies also show, that the conversion to organic farming is influenced by inefficiency. In three of four studies, organic farms have a lower productivity than conventional farms. The degree of specialization on organic farms is not optimal, however the limits of specialization for organic farms are not discussed. Studies on environmental efficiency show organic farming is more efficient when the environmental dimension is taken into account. Some studies also model the impact of subsidies on farm’s efficiency.

3) Technical efficiency as a determinant of conversion to organic farming
(by Laure Latruffe (INRA, Rennes), Céline Nauges (University Queensland, Australia) & Yann Desjeux (INRA Rennes))

Technical efficiency of farms under conventional agriculture determines whether farms convert to organic or remain in conventional farming. Efficient farms may be more capable of adopting new technologies and therefore convert to organic farming. By contrast, choosing to produce for the organic niche market may be a survival strategy for technically inefficient conventional farms.

A study on French crop farms investigates technical efficiency during the years preceding conversion in order to predict the probability of conversion. The results show an influence of technical efficiency of (conventional) farms on the probability to convert to organic farming, but that the direction depends on farm-size and production-type.

Another study on dairy farms from North West France considers the effect of (past) technological change on the decision to convert. Results show that dairy farms switching to organic farming show a higher efficiency in conventional farming, but experienced a slowdown in efficiency the year before conversion.

 

4) Matching efficiency results of organic farms
(by Jochen Kantelhardt and Stefan Kirchweger (both Natural Resources and Life Science (BOKU), Austria) 

Organic farms work under very heterogeneous natural-site and socio-economic conditions. This heterogeneity is of clear relevance for economic efficiency and for the decision of farms to convert to organic farming. In order to produce proper results efficiency analysis must consider such heterogeneity and self-selection aspects. This applies in particular to data envelopment analysis, since this technique does not calculate error terms, but include heterogeneity into efficiency results. One way to control for such effects is matching. Matching is based on the assumption that under a given vector of observable variables, the outcome of one individual is independent of the adoption of a specific treatment. In our paper we present how to implement matching into efficiency analysis of organic farms. We give a brief overview on literature applying this technique and we discuss which insights the application of matching might contribute to the current discussion on organic farming.

5) Determinants of MD2 Adoption, Production Efficiency and Technology Gaps in the Ghanaian Pineapple Production Sector
(Amos Mensah and Bernhard Brümmer (University Göttingen)

This study examined the response of the Ghanaian pineapple production sector to the 2004/05 crisis where a swift shift of international market demand from the traditional smooth cayenne and sugar loaf variety to MD2 variety almost destroyed the entire fruit industry. Seven years after the crisis, we studied how Ghanaian pineapple farmers have responded to international market demand. We estimated the proportion of our sampled farmers cultivating the MD2 variety and analysed the factors influencing adoption of the MD2 variety using a logistic regression model. We employed metafrontier analytical techniques to assess the current productivity level of organic and conventional pineapple producers using a cross sectional data set gathered from 404 farm-households in three regions where commercial production is most concentrated. The results of our analysis reveal that, the majority of farmers in both organic and conventional production systems was operating quite near their group frontier as well as the industrial frontier.

So if you found that interesting, feel free to visit our Symposium! It’s on Thursday, 13/Aug/2015: 11:00am – 12:30pm, Malliani Room 70.

The following might be interesting for additional reading: Lakner, S. and G. Breustedt (2015): Efficiency analysis of organic farming systems ICAE-paper

Comments always welcomed!