Can cooperatives influence farmer’s decision to adopt organic farming? Agri-decision making under price volatility

Abstract

With the growing importance of sustainable farming and increasing fluctuations in the price of agricultural produce, the choice of nature of farming and participation in a cooperative has become critical. This paper examines farmers’ decision of adopting organic farming and participating in cooperative institutions to market their produce. We formulate a two-stage strategic game model whereby two farmers first choose a technique of production of their crops followed by a decision regarding the mechanism by which to sell their products to cope with the environment of uncertain agricultural prices. We extend the two-stage process to find out conditions under which it would be profitable for a farmer to produce organic crop. We found that farmers are more likely to produce organic crop if they can sell their produce through a cooperative. Our analytical results show that incremental costs of organic production, the operational cost of running cooperatives and crop’s price volatility can be crucial in influencing farmers’ choice of production techniques of and marketing institutions. In particular, we found that when it is easier for farmers to participate in cooperative, they tend to choose organic production technique. To empirically support the findings, we analyzed the weekly transactions of 65 Fruits and Vegetables during 2017 in six different regions in the United States. We found that regions with higher number of cooperatives registered higher transactions in organic crop.