Profitability and Adoption of Organic Agriculture: Essays on the Decision to Transition

This dissertation focuses on the economics of organic agricultural production and the decision that conventional farmers face: whether to convert to an organic system or not. Previous research has compared the profitability of organic and conventional cropping systems and has consistently concluded that organic crop production is at least as profitable as conventional production. Despite the apparent profitability advantage of organic production, growth in certified organic cropland has slowed in recent years, and an increasing portion of organic food consumption in the United States is being satisfied by imports. The essays in this dissertation seek to explain this discrepancy by presenting a more complete analysis of organic system profitability and the dynamics of the transition decision than has previously been available.;The first essay uses data from a long-term cropping systems trial to estimate the maximum farm size that can be managed under conventional and organic rotations, subject to different machinery complement scenarios and appropriate yield penalties for management delays. Using these farm size results I estimate whole-farm net returns for each system and then compare the estimated distributions of net returns using stochastic dominance criteria. The second essay extends a much smaller line of research on organic transition and models the decision to transition to organic crop production as a dynamic programming problem in which investment (i.e. transition) is reversible but includes sunk costs. The optimal transition decision's sensitivity to farm size and expected organic returns is explored, as well as the impact of high relative returns to conventional production in the short-term. The third essay ties the results from the dynamic programming model to empirical data on aggregate dairy farm transition behavior over time. Using techniques developed for dynamic panel data, I estimate the threshold values that define the regimes of optimal disinvestment, inaction, and investment in organic milk production. A short fourth essay ties the results of the previous chapters to the broader literature on the motivation and characteristics of organic and transitioning farmers. The barriers to organic transition that have been identified by research in other fields are discussed in the context of the economics of organic transition.