Production Risk and Technical Efficiency in Organic and Conventional Agriculture – The Case of Arable Farms in Germany

Authors

  • Torben Tiedemann,

  • Uwe Latacz-Lohmann

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    • Both authors are with the Department of Agricultural Economics, Christian-Albrechts University, Kiel D-24118, Germany. Uwe Latacz-Lohmann is also Adjunct Professor in the School of Agricultural and Resource Economics at the University of Western Australia. E-mail: ulatacz@agric-econ.uni-kiel.de for correspondence. The authors wish to thank the Fielmann AG for financial support as part of the Hof Ritzerau Project. Thanks are also extended to two anonymous referees and the editor for helpful comments and suggestions.


Abstract

This paper quantifies the importance of production risk and technical efficiency as two possible sources of production variability in German organic and conventional farming. Determinants of production risk and inefficiency are investigated based on a combination of Just and Pope’s stochastic production framework and a Stochastic Frontier Analysis. The empirical analysis is conducted using a balanced panel of farm records from 1999/2000 to 2006/2007 on 37 organic and conventional arable farms, respectively. Euclidian-Distance-Matching is used to identify for each organic farm a conventional counterpart with similar structural features. Results indicate that output variability in both production technologies is mainly caused by production risk. Land and labour are identified as risk-increasing inputs in both farm types whereas higher capital endowment, seed costs and soil quality have risk-reducing effects.

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