IS ORGANIC VEGETABLE PRODUCTION PAID FOR INCREASED RISK? A QUICK SCAN
According to common perceptions, questions arise whether risks really increase when farming organically and, if risk indeed increases, whether it is paid for. As basic data are mostly missing, answering these questions needs best managerial estimates and a transparent analysis framework. A Monte Carlo simulation model, using a theoretical volatility-return benchmark from financial markets, is con¬structed as a quick scan for estimating extra risk and the linked risk premium for some vegetable crops. Despite data scarcity and uncertainty, return on capital employed (ROCE) and its variation can be robustly compared between organic and non-organic farming through decomposing ROCE by yield, price and cost components and performing sensitivity analysis. Robustness is mainly achieved when expressing the risk premium on a per-ha basis. The quick scan is used for finding factors that highly influence the risk premium. For early potatoes, the risk is paid for by a sufficient income under the considered conditions, in which the organic price premium is crucial. Other crops like cauliflower need a slightly higher yield or price to turn the forgone risk premium in a sufficient one. Transparency and easiness to apply makes the quick scan a useful instrument to produce risk-related information from scarce data, to support decision making at farm level and to indicate factors important for further support and development of the organic sector.
Lauwers, L., De Cock , L., Wauters, E. and de Wit , J. (2012). IS ORGANIC VEGETABLE PRODUCTION PAID FOR INCREASED RISK? A QUICK SCAN. Acta Hortic. 933, 661-668
risk premium, organic farming, Monte Carlo simulations, vegetable crops