Transitioning to Organic Crop Production: A Dynamic Programming Approach

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.

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Journal Article
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Journal of Agricultural and Resource Economics, 41, 3
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Vol. 41
No. 3

 Record created 2017-04-01, last modified 2019-08-30

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