A review of the problems of conventional agriculture (such as pest resistance to pesticides, and deterioration of human health and of soil and water quality) is carried out. The extent to which these problems can be alleviated by switching to sustainable agriculture is examined. The main emphasis of the thesis is on the effects of sustainable agriculture on farmers' returns, with some consideration of net benefits to the community at large. The effect on the farmers' returns are examined in two ways. First, a literature review is undertaken of studies in which private net benefits accruing to sustainable farmers are compared with those accruing to conventional farmers. Second, a detailed comparative survey of Australian sustainable cereal/livestock farmers and their conventional farmer neighbours is carried out for 1985-1986. Financial and non-financial aspects are analysed. The effects of transition on the level and variability of wheat yields in the long run are examined. Private returns to farming are influenced by existing marketing arrangements. The cost to sustainable farmers of Australian wheat marketing regulations are found to offer no incentive to exploit the higher prices for organically grown wheat. Government policies influence the relative profitability of alternative farming systems. A linear programming model is used to determine how the optimal farm system is affected by changes in fertiliser and pesticide taxes and subsidies, and changes in commodity prices. Considerable changes in input and output prices are found to be needed before changes in input use take place. Policy implications of the findings in the earlier chapters are explored. Arguments are presented for government involvement in the areas of non- subsidisation or taxation of synthetic fertilisers and pesticides, subsidies for research and extension in sustainable agriculture, and the implementation of quality control measures.