Comparing risk in conventional and organic dairy farming in the Netherlands: An empirical analysis

This study was undertaken to contribute to the understanding of why most dairy farmers do not convert to organic farming. Therefore, the objective of this research was to assess and compare risks for conventional and organic farming in the Netherlands with respect to gross margin and the underlying price and production variables. To investigate the risk factors a farm accountancy database was used containing panel data from both conventional and organic representative Dutch dairy farms (2001-2007). Variables with regard to price and production risk were identified using a gross margin analysis scheme. Price risk variables were milk price and concentrate price. The main production risk variables were milk yield per cow, roughage yield per hectare, and veterinary costs per cow. To assess risk, an error component implicit detrending method was applied and the resulting detrended standard deviations were compared between conventional and organic farms. Results indicate that the risk included in the gross margin per cow is significantly higher in organic farming. This is caused by both higher price and production risks. Price risks are significantly higher in organic farming for both milk price and concentrate price. With regard to production risk, only milk yield per cow poses a significantly higher risk in organic farming.