Sustainable Governance of Organic Food Production When Market Forecast Is Imprecise

Guanghua Han, Xujin Pu and Bo Fan
Additional contact information
Guanghua Han: School of International and Public Affairs, Shanghai Jiao Tong University, Shanghai 200240, China
Xujin Pu: School of Business, Jiangnan University, Wuxi 214000, China
Bo Fan: School of International and Public Affairs, Shanghai Jiao Tong University, Shanghai 200240, China

Sustainability, 2017, vol. 9, issue 6, 1-20

Abstract: During the past few years, the market for organic food has been experiencing rapid growth. However, the market demand for organic food typically fluctuates due to its seasonal nature and customized characteristics, and it remains fairly difficult to precisely forecast market demand prior to the selling season. Forecast bias usually creates inefficiency in an organic food producer’s production plan and results in a substantial amount of waste. Thus, this paper studies how much an organic food producer is likely to lose with a certain level of forecast bias and investigates whether forecast bias necessarily results in an improper production plan. Finally, we calculate the maximum potential profit loss rate when the organic food producer determines how much to produce based on his forecasted demand, which we believe will be instructive for organic food producers in making production decisions. The target problem is formulated by a newsvendor model and solved using a tolerant analysis approach. We find that an organic food producer can still find the optimal solution only if his forecast bias is under a certain threshold. However, if the organic food producer’s forecast bias is beyond the threshold, he will probably make a sub-optimal production decision and potentially experience a profit loss. Subsequently, we analytically calculate an organic producer’s maximum potential profit loss rate for any given level of forecast bias. Examples are employed to numerically illustrate the main findings.

Keywords: forecast bias; profit loss rate; newsvendor model; organic food (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://www.mdpi.com/2071-1050/9/6/1020/pdf (application/pdf)
https://www.mdpi.com/2071-1050/9/6/1020/ (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:gam:jsusta:v:9:y:2017:i:6:p:1020-:d:101487

Access Statistics for this article

Sustainability is currently edited by Ms. Alexandra Wu

More articles in Sustainability from MDPI
Bibliographic data for series maintained by MDPI Indexing Manager ().