Conversion to organic arable farming in The Netherlands: A dynamic linear programming analysis

Abstract

Several studies show that organic farming is more profitable than conventional farming. However, in reality not many farmers convert to organic farming. Policy makers and farmers do not have clear insight into factors which hamper or stimulate the conversion to organic farming. The objective of this paper is to develop a dynamic linear programming model to analyse the effects of different limiting factors on the conversion process of farms over time. The model is developed for a typical arable farm in The Netherlands central clay region, and is based on two static liner programming models (conventional and organic). The objective of the model is to maximise the net present value over a 10-year planning horizon. The results of the analysis of a basic scenario show that conversion to organic farming is more profitable than staying conventional. In order to arrive at the actual profitable phase of organic farming, the farmer has to pass through the economically difficult 2-year conversion period. Sensitivity analysis shows that if depreciation is 25% higher than conventional fixed costs due to machinery made superfluous by conversion, conversion is less profitable than staying conventional. Also the availability of hired labour, which can be constrained in peak periods, has a strong effect on the cropping plan and the amount of area converted. Further analysis shows that a slight drop (2%) in organic prices lowers the labour income of the farmer and makes conversion less profitable than conventional farming. For farmers, a minimum labour income can be required to ‘survive’. The analysis shows that constraint on minimum labour income makes stepwise conversion the best way for farmers to overcome economic difficulties during conversion.