Transitioning to Organic Crop Production: A Dynamic Programming Approach

Timothy A. Delbridge and Robert King

Journal of Agricultural and Resource Economics, 2016, vol. 41, issue 3, 18

Abstract: Despite evidence that organic cropping systems in the Midwest can be more profitable than conventional systems, only a small percentage of cropland has been certified as organic. This paper models the decision to transition to organic crop production as a dynamic programming problem in which investment is reversible but includes sunk costs. Results indicate that the risk and unrecoverable costs associated with organic transition lead to a significant option value, and this provides a partial explanation for low transition rates in the baseline scenario. Sensitivity to expected organic yield and price levels is explored, as are the costliness of reverse transition and the short-term effect of high conventional return levels.

Keywords: Crop Production/Industries; Farm Management (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (8)

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Persistent link: https://EconPapers.repec.org/RePEc:ags:jlaare:246250

DOI: 10.22004/ag.econ.246250

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