An environmental cost-benefit analysis of organic and non-organic sheep farming in Iceland

Abstract

This paper presents an environmental cost-benefit analysis (CBA) comparing organic and non-organic sheep farming in Iceland over three decades. Environmental life cycle costing (ELCC) is the basis for the aggregate cost framework, encompassing costs for investment, operations, maintenance, and environmental externalities. Greenhouse gas emissions are included as an external cost as they relate to the monetization of damages to society. Net present value (NPV) and benefit-cost ratio (BCR) indicators reveal both systems as unprofitable over thirty years with and without subsidies. Depending on the discount rate, the organic farm's BCR ranges from 0.26 to 0.38, with a NPV between (-2.4) and (-1.1) million euros. The non-organic farm's BCR ranges from 0.12 to 0.19, with NPV between (-8.6) and (-3.7) million euros. Greenhouse gas emission costs constitute 28% and 33% of total life cycle costs for organic and non-organic farms. Across three discount rates, the LCC and ELCC per kilogram of organic lamb ranged between €13.78 – 25.27 and €18.23 – 37.07, respectively. The LCC and ELCC per kilogram of non-organic lamb ranged between €9.75 – 18.05 and €13.80 – 28.82, respectively. Due to a shortened value chain, organic sheep farming demonstrated revenue advantages as compared to non-organic. The external cost of greenhouse gas emissions from sheep farming forms a significant portion of lifetime costs suggesting that policymakers could incentivize organic practices aimed at reducing greenhouse gas emissions. Finally, this study provides a deeper understanding of the long-term economic prospectivity of sheep farming under different production approaches.