Is organic vegetable production paid for increased risk? A quick scan.

Research output: Contribution to journalA2: International peer reviewed article (not A1-type)peer-review

Abstract

According to common perceptions, questions arise whether risks really increase when farming organically and, if risk indeed increases, whether it is paid for. As basic data are mostly missing, answering these questions needs best managerial estimates and a transparent analysis framework. A Monte Carlo simulation model, using a theoretical “volatility-return” benchmark from financial markets, is constructed as a quick scan for estimating extra risk and the linked risk premium for some vegetable crops. Despite data scarcity and uncertainty, return on capital employed (ROCE) and its variation can be robustly compared between organic and non organic farming through decomposing ROCE by yield, price and cost components and performing sensitivity analyses. Robustness is mainly achieved when expressing the risk premium on a per-ha basis. The quick scan is used for finding factors that highly influence the risk premium. For early potatoes, the risk is paid for by a sufficient income under the considered conditions, in which the organic price premium is crucial. Other crops like cauliflower need a slightly higher yield or price to turn the forgone risk premium in a sufficient one. Transparency and easiness to apply makes the quick scan a useful instrument to produce risk-related information from scarce data, to support decision making at farm level and to indicate factors important for the further support and development of the organic sector.
Original languageEnglish
JournalActa Horticulturae
Issue number933
Pages (from-to)661-668
Number of pages8
ISSN0567-7572
Publication statusPublished - Mar-2012

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