Is Organic Farming Worth its Investment? The Adoption and Impact of Certified Pineapple Farming in Ghana

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Is Organic Farming Worth its Investment? The Adoption and Impact of Certified Pineapple Farming in Ghana

  1. 1. Is Organic Farming Worth its Investment?The Adoption and Impact of Certified Pineapple Farming in Ghana Linda Kleemann 12/07/2012
  2. 2. Overview of thesis Adoption and development impact of sustainable agriculture on small-scale farmers’ livelihoods in rural Ghana Overview: Sustainable Agriculture and Food Security from Africa’s Perspective Value chain: Organic Farming in Ghana ‐ A Good Choice for Smallholders? Price transmission: Knowing Where Organic Markets Move Next - An Analysis of Developing Countries in the Pineapple Market Certification: Is Organic Farming Worth its Investment? The Adoption and Impact of Certified Pineapple Farming in Ghana Certification and agro-ecological practice use: Certification or Agro- Ecological Practice Use or Both? – Linkages and Investment Impact
  3. 3. Overview of this presentation1) Motivation2) Literature Review3) The Pineapple Sector in Ghana4) Theory5) Data6) Empirical Strategy7) Results8) Discussion
  4. 4. Motivation Globally:  Changes in global food markets: new requirements  Environmental conscious consumers Locally (in Ghana):  Export-led agricultural development in Ghana  Sustainable intensification Our contribution:  No mixing of contract farming, export and certification impact  Not project based  Outcome variable ROI (including certification cost, etc.)  Results set in relation to perceived motivations and outcomes
  5. 5. Research Question(s) What determines the choice between organic and GlobalGAP certification? Is organic certification worth ist investment?
  6. 6. Literature Review (1) Determinants of Adoption found in the literature (examples):  Education (+)  Tenure security (+)  Labor availability (+)  Wealth (+)  Distance to a major city (-)  Neighbours (+/-)  Perceptions (+/-)
  7. 7. Literature Review (2) Impacts Types: financial, economic, (social), (environmental)Organic certification GlobalGAP certification  Modest positive effect on  Positive income effects farmer welfare (poverty,  Access to export market hh income,…)  Employment opportunities  Possibly negative effect on yield  Reduced dependence on (expensive) inputs but increased dependence export market Analytical methods? Counterfactual?
  8. 8. The Pineapple Sector in Ghana Non-traditional export crop since the 1980ies Varieties: MD2 (new export), Smooth Cayenne (old export), Sugar Loaf (local) and Queen Victoria (high value)
  9. 9. Export pineapple production area in Ghana 9
  10. 10. Actors in the Pineapple Sector SmallholdersLocal buyers MoFA Development Agrencies, NGOs Export ProcessorscompaniesLarge farms
  11. 11. Theoretical Framework Random utility framework  Second stage of a two-stage decision  Binary choice to maximize underlying utility function ; ( ) Difference between expected utilities: unobserved utility, observed choice: with Z = observables and = error term Probability of adoption =…=
  12. 12. Data Household survey of 386 farmers  January to March 2010  75 villages from 6 districts in Central, Eastern and Greater Accra region  185 organic (from 9 farmer associations), 201 GlobalGAP (from 14 farmer associations) Stratified random sampling  Districts with high production  Percentage of certified groups in districts
  13. 13. Descriptive Statistics
  14. 14. Descriptive Statistics (2)
  15. 15. Certification Costs
  16. 16. The Return on Investment (ROI) Relative profitability measure – relates profits to the investment base Descriptive Statistics of ROI components
  17. 17. Empirical Strategy The setting: D and X have influence on Y (i.e. ROI): The problem: = treatment effect: >> Is biased >> Choice of data and regression method to minimize bias • Similar groups • Information on discrimination by firms • Endogeneous switching regression (ESR) and propensity score matching (PSM)
  18. 18. Endogeneous Switching Regression Outcome equations for each regime - probit for adoption model Expected values of truncated error terms:
  19. 19. Endogeneous Switching Regression Second stage: FIML estimation (Lokshin and Sajaia, 2004)  Correlation coefficients:  When are significant > endogeneous switch   same sign > hierarchical sorting
  20. 20. Propensity Score Matching Propensity score (first step): Matching Methods applied:  Nearest-neighbor one-to-one  Nearest-neighbor one-to-many  Kernel  Radius ATT in comparison to ESR:
  21. 21. Results of ESR
  22. 22. ATT with PSM and ESR
  23. 23. Robustness ChecksPSM Rosenbaum bounds  based on kernel Γ *= 1.25  Based on one nearest-neighbor: Γ* = 1.3 Include higher ordered variables Reduced equipment costESR OLS different exclusion restrictions
  24. 24. Comparison with stated motivations Reasons for choosing this certification Organic GGMarket demand 55% 51%Environmental concerns 29% 38%Production 10% 10%Other reasons 5% 2%
  25. 25. Comparison with stated motivations Why did you decide to get certified?30% Organic25% Conventional20%15%10%5%0%
  26. 26. Comparison with stated impacts How has your income from pineapple How has the stability of your pineapple income changed since receiving the certification? changed since receiving the certification?70% 80% Organic Organic Conventional 70%60% Conventional 60%50% 50%40% 40%30% 30%20% 20%10% 10%0% 0% no change increased reduced no change more certain less certain
  27. 27. Conclusion & DiscussionPositive ROI Policy RecommendationsOrganic higher ROI due to higher prices  Organif potential win-win  Lower yields, higher  Support is needed for employment effects investment costOrganic more attractive forpoorer HH  Tailor information to achievable goals  poverty and inequality reduced  Side effects of support and  Increasing organic demand information are importantPure certification effect Limitations  variables change in to be  Risk, survival rates importance  Panel dataSelf-statements  externalities, in p.  Objective: classification – environmental effects subjective: sustainability and success
  28. 28. Production Costs
  29. 29. PSM – Probit Results
  30. 30. Export shares Export shares before certification Export shares after certification Organic Organic 60% 80% 70% 50% Conventional Conventional % of households% of households 60% 40% 50% 40% 30% 30% 20% 20% 10% 10% 0% 0% < 25% 26-50% 51-75% 76-100% < 25% 26-50% 51-75% 76-100%
  31. 31. Organic and GLOBALGAP trade standards in EuropeOrganic: certification requirement according to regulation (EC) 834/2007 and (EC) 889/2008GLOBALGAP: Private standard founded in 1997 as EurepGAP by European retailers Aim: establish one standard for Good Agricultural Practices (GAP) 76 % of fresh fruit and vegetables on European market GLOBALGAP certifiedBoth have certification options for smallholder groups
  32. 32. ESR
  33. 33. ATT for different matching algorithms
  34. 34. ATT (reduced equipment cost)
  35. 35. Distribution of Propensity Scores
  36. 36. OLS Results
  37. 37. Demand versus supply driven choices Reason for cultivating variety: GG OrganicBuyer demands 86.2% 70.4%Cost of production 4% 8.5%Availability of planting material 9.8% 17.6%Other reasons 0 3.5%
  38. 38. Production schedule of pineapples• One cycle approx. 5 years• 11 – 18 months from planting to harvest• Plant population per acre 16 000 – 30 000land preparation forcing harvest fallow or rotation crops planting inspection & sucker production degreening 10 month 4 month 1 week 6 month 1-2 years
  39. 39. Why do smallholders have a chance on the international market? Risk reducing strategies by large plantations Restrictions to land access Large plantations: diseconomies of scale due to the high cost of labour supervision  (Brockmeyer, 2008; Suzuki, 2008) Constraints to export (TIPCEE, 2009):  Consistent quality  Key certifications  Exportable volumes

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