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Abstract
We analyse the relative competitiveness between organic and conventional dairy farming
under different hypothetical agricultural policies using a DEA-based comparison of each
farm’s earning potential in both technologies. This model allows us to identify a farm’s ex
post optimal technology based on input-output observations. Results for Bavarian dairy farms
indicate that more than 70% of the farms in both technologies – organic and conventional –
have chosen their optimal farming system. The remaining organic (conventional) farmers
could increase their profit by roughly 7% (18%) on average by switching to the other
technology. Abolishment of the EU milk quota reduces the number of sample farms for which
organic farming is the optimal technology considerably. This finding suggests that ceteris
paribus organic dairy farms may lose competitive advantage with the deregulation of the
EU’s milk market regime in 2015. Simulations show, that this effect may be offset by a price
decline for conventional milk of more than 10% relative to the price for organic milk. Another
finding reveals that subsidies specifically paid to organic farmers roughly double the number
of farms who have a higher earning potential in organic than in conventional dairy farming.