Policy implementations for organic agriculture: A real options approach

Organic farming has experienced a vast increase within the EU, despite the fact that it implies greater risk and uncertainty than that of conventional farming. This is the result of the increased environmental concern and the rising demand for quality food, which led to the implementation of the organic policy scheme. Nevertheless, the production of organic fruits, including cherries, is still limited in the EU. Farmers will adopt this alternative farming system only if the support provided by the existing policy regime out weights the increased risk and uncertainty. This study explores the effectiveness of the current policy measures for the production of organic cherries in Greece, using the real options methodology. The framework of real options analysis is an appropriate form of analysis so as to examine the investment’s profitability under risk and uncertainty and assess the economic incentives offered to organic farmers. The results indicate that the economic incentives provided by the existing policy regime, compensate for the risk and the uncertainty that farmers are undertaking. Furthermore, this study reveals that the profitability of the economic activity explored, lies mainly on the subsidies organic farmers receive.