Technical Efficiency of U.S. Organic Farmers: The Complementary Roles of Soil Management Techniques and Farm Experience

Agricultural and Resource Economics Review, Oct 2006 by Lohr, Luanne, Park, Timothy A

Agricultural policymakers place increasing emphasis on developing efficiency measures for organic producers in order to evaluate regulatory strategies and evolving organic market conditions. We develop technical efficiency measures for U.S. organic farmers using a stochastic production frontier. Farm decisions about acquiring and managing organic soil materials from on-farm and local sources are incorporated into the technical efficiency measure. Productivity differences between newer entrants to organic farming and more experienced producers are estimated in order to isolate the impact of learning and management expertise on farm-level technical efficiency.

Key Words: organic farming, frontier production function, soil organic matter, performance measurement, technical efficiency

(ProQuest Information and Learning: ... denotes formulae omitted.)

Impressive and sustained growth in the market for organically grown foods in Europe, Latin America, and the United States has stimulated new national, state, and private research initiatives to understand the key factors driving expansion. Economic factors that influence organic production including yields, input costs, income, profitability, and other financial indicators have been documented, and comparisons to conventional farming systems are readily available. Tzouvelekas, Pantzios, and Fotopoulos (2001a, 2001b) assessed the technical efficiency of organic and conventional farms of olive-growing and cotton farms in Greece. Compared to conventional farms, the organic farms operated closer to their production frontiers, although average technical efficiency is low for both farming methods. An emerging issue focuses on variation of production efficiency within the organic sector itself, recognizing that the productivity of sustainable agricultural production systems evolves in concert with the experience of the manager. Farm earnings and long-term economic viability, along with productive management and input acquisition strategies, are indicators that can be readily observed and linked back to the performance of the farm operations.

Policymakers examining impacts of support programs such as the Conservation Security Program in the United States and policies to promote organic farming in European countries need efficiency measures that can track national and regional organic production trends. The OECD (Organization for Economic Cooperation and Development) Joint Working Party on Agriculture and the Environment (OECD 2003) has promoted the development of agri-environmental indicators that are readily measurable at the farm level and communicate essential information about the viability and environmental performance of farm operations to policymakers and the wider public.

Private and state organic certification agencies and extensionists value indicators that can readily identify the most productive and efficient farms and management techniques. Increasing emphasis has been placed on indicators of agri-environmental efficiency, under the assumption that conventional agriculture's productivity has been gained at the expense of environmental quality (OECD 2001). Linking environmental measures with earnings-achieved profitability measures offers insight into achieving this goal, but no research has focused directly on this issue for organic farms.

We use a frontier production function approach, explicitly incorporating environmental measures recommended by the OECD, in order to assess the technical efficiency of organic farming. Organic farmers frequently comment on difficulties in obtaining organic inputs from sources close to the farm, and the sampled farmers used in this study rate this problem among the top three most important barriers to organic production (Walz 1999, p. 87). El-Hage Scialabba and Hattam (2002) mentioned the social performance of organic production in revitalizing communities and noted that local employment opportunities flowing from organic production "encourage people to remain in agriculture, reinvigorating rural communities" (p. 15). Duram (2005) commented on consumer preferences for local or regionally grown food that relies on local inputs in the production process.

A related issue is how the efficiency of organic agricultural systems depends on the experience of the farmer with organic methods. The productivity and performance efficiency of the organic farm operation depends on the managerial strategies of the farmer and the timing of the farmer's decision to convert to organic methods. El-Hage Scialabba and Hattam (2002) pointed out that farmers transitioning to organic production methods initially face reduced productivity. As expertise increases over time, the performance of the organic agriculture system improves in response to improved management skills. Tauer and Lordkipanidze (2000) reported that productivity of U.S. farmers appears to increase slightly with age and then decline. Huffman (2001) suggested that as agricultural production is dominated by biological processes that are controlled by climate and are land-surface-area intensive, the potential for raising labor productivity through skill acquisition and specialization of labor is greatly limited. Tzouvelekas, Pantzios, and Fotopoulos (2001a) found that education and age, as proxies for entrepreneurial skill, have positive impacts on the efficiency of organic farmers. The specific role of experience in organic production efficiency has not been addressed in any research, highlighting the value of the comprehensive survey of U.S. organic farmers that is used here.