Revenue efficiency, profitability, and profitability potential on organic versus conventional dairy farms—results from comparable groups of farms

Abstract

The purpose of this paper is to explore whether differences in profitability and revenue efficiency exist between Norwegian organic and conventional dairy farms. With access to accountancy data from more than 1000 conventional farms, it was possible to compare the 59 organic farms with a matched group of 177 conventional farms. The two groups did not differ significantly with respect to share of turnover from milk, forage area, number of cows, milk quota, location, and share of robotic milking. Data spanned over the fiscal years 2014 to 2016. Stochastic frontier analysis was used to calculate revenue efficiency. The results confirmed that organic farms and conventional farms use different production technology, and therefore, we calculated efficiency on two different production frontiers. On average, organic dairy farms were 6.5 percentage points more revenue efficient than conventional farms. Although conventional farms appeared more profitable than organic farms, differences were not significant; however, conventional farms had a higher profitability potential than organic farms.