Economics of Organic Production Systems and Policy Options in South Asia

Abstract

Agriculture is predominately the main sector of South Asia which employs about 60% of the labor force and contributes 22% of the regional GDP. Most of the farmers are small who are facing the high cost of production incurred mainly on pesticides and fertilizers. Moreover, the transition from traditional agriculture to Green Revolution agriculture, led to mono-cropping patterns, loss of on farm biodiversity and dependence on capital. On the other side, organic agriculture was a possible option for the farmers in comparison with Green Revolution technologies by depending on their on-farm resources, promoting crop diversity and using environment friendly techniques. The present study was designed to assess the profitability of Organic production systems in comparison with Conventional systems. The study was conducted in three South Asian countries including Pakistan, Bangladesh and Nepal. A multistage sampling technique was employed to select the sample farms to collect the primary data from both organic and conventional farms. The profit function approach which combines the concepts of technical and allocative efficiency was utilized to assess the profit efficiency of organic and conventional farms. The focus of the study was to estimate the profit efficiency of organic and conventional farmers along with factors affecting the profit efficiency. Cobb Douglas functional form of stochastic profit frontier function was used to determine the profit efficiency. Rice and wheat crops being both cash and staple food crops of the region were selected for the comparative analysis. The results of the study show that the average profit efficiency of Pakistani organic wheat (0.915) was relatively higher than the conventional farmers (0.911) to conclude that organic wheat farmers are more profit efficient than conventional farmers. The average profit efficiency of organic rice farmers (0.89) was less than conventional rice farmers (0.910) in Pakistan but still comparable. The average profit efficiency of organic and conventional wheat farmers in Nepal was found to be approximately equal with efficiency scores 0.860 and 0.855 respectively while average profit efficiency (0.874) of organic rice farmers is slightly better than the average profit efficiency of conventional rice farmers (0.857). The organic wheat farmers in Bangladesh were more profit efficient with efficiency score of 0.902 as compared to conventional wheat farmers with efficiency score o.733. Profit efficiency of organic rice farmers with efficiency score 0.748, was better than conventional rice farmers (0.657). The results show that variable costs impact differently in both organic and conventional farming but their overall impact is found to lower the profit. Capital and soil fertility were observed to play an important role in increasing profit. The pest breakout significantly affects the profit negatively in all selected countries and requires timely application of plant protection measures. The study also attempted to ascertain the factors affecting the profit efficiency in wheat and rice farming under organic and conventional conditions. The estimated coefficient of education is significant in all categories with negative sign indicating that education is contributing to reduce the profit inefficiency in both organic and conventional farming in the selected countries. The coefficient of experience is significant in organic and conventional wheat farming and conventional rice farming. The coefficient of experience is non-significant in organic rice farming. The negative sign in all categories indicates that experience of the farmers contributes to reduce the profit inefficiency. Experience of the farmers in wheat and rice farming, linkages with extension services and access to credit were also the important variables to affect the inefficiency negatively. Off-farm employment was found to have positive impact on efficiency especially in case of Bangladesh. KEY WORDS: Organic Agriculture; Profit efficiency; Stochastic frontier profit function; Rice and wheat crops; South Asia