The remainder of the paper is organised as follows: The next two sections describe the applied methodology and data sources that are used in the study. Finally, the paper concludes with a summary of the main findings, a discussion regarding the investment strategies of Greek organic cherry farmers and critical suggestions for agricultural policy planners. Analysing cherry farmers’ decision making entails understanding how they rank activities with uncertain outcomes,given the stochastic yield of cherry orchards and the stochastic market price of cherries. The economic evaluation of organic and conventional cherry production is implemented considering the whole range of net present values and their associated probabilities, vertical rack system along with the relative preferences of the decision makers.
To assess and compare the economics and the risk efficiency of conventional and organic cherry production, this study employs stochastic simulation as an unconventional method that incorporates risk.Stochastic dominance and stochastic efficiency with respect to a function analyses have a major advantage in that they reduce the set of all possible risky choices to a small group of alternatives. The SERF technique is a novel improved methodology for assessing and ranking risky alternatives but empirical studies using SERF are limited, Especially in agriculture, SDRF and SERF analyses have been used to compare risky alternatives regarding farm production, marketing and financial matters. In Greece, SERF analysis has been used by Tzouramani et al. to determine risk efficiency between organic and conventional lemons and citrus cultivation and by Tzouramani et al. , to explore the economic viability of conventional and organic sheep farming.
The annual production costs for both organic and conventional cherry production were calculated in accordance with their deterministic enterprise budgets. The production cost for conventional cherries is 25.25%higher than for organic cherries, indicating a more intensive production system. The most important element of the conventional cherry production cost is the labour cost , which is 71.42% greater than that of organic production, as conventional production demands more labour during the harvesting season, more field operations and more intensive pruning and irrigation.Capital cost is also an important element of total cost in both activities. The purchasing cost of fertilizers and pesticides constitutes almost half of the capital cost. In the case of conventional production, mobile grow rack this is due to the large quantity of inputs used, whereas in the case of organic production, this is due to the high price of certified organic pesticides and herbicides. Stochastic dominance analysis is applied to investigate the interest of farmers in the expansion of the cherry sector.
Investment in either organic or conventional agriculture should improve both economic and environmental performance. Given the current economic crisis and the limited availability of agricultural funding, economic performance is crucial for Greek farmers, and improved competitiveness should be their core aim. Diversification into higher-value crops would be an option for a large number of small and medium farmers if they could manage the technical, financial and marketing requirements of the new cultivation. In this study, a stochastic efficiency with respect to a function analysis is applied to evaluate two investment options: an organic cherry orchard, and a conventional one. Furthermore, a sensitivity analysis is employed to examine the economic effect of the organic subsidy level.The stochastic model estimates the probability of each NPV outcome occurring, providing an NPV range,with minimum, maximum and mean values. Simulated distributions of expected net returns were developed in a Simetar environment. A Monte Carlo simulation was used to determine the mean and variance of the NPV for conventional and organic cherry production.
The cumulative distribution functions were constructed to demonstrate that the probability of a NPV for each activity was less than a particular CDF level. Although CDFs provide useful information on the profitability of the compared activities, the preferred activity for a certain decision maker depends also on his/her risk aversion. To determine the preferred alternative, stochastic dominance and SERF analyses were applied.A crucial element in the formation of NPV is the level of organic subsidy. Under the previous Greek policy scheme, organic cherry farmers benefited from a 900 €/ha subsidy. However, after 2007, this subsidy was abolished.To investigate its importance, we applied a sensitivity analysis using various portions of the level of subsidy provided under the previous policy scheme. Since the beginning of the industrial revolution many environmental issues have started emerging due to the growing human dependency manufactured items,transport and the constant desire to increase personal wealth.