Grade Level at Time of Presentation

Senior

Institution

Murray State University

KY House District #

5

KY Senate District #

1

Department

Department of Economics and Finance

Abstract

Recently in the organic food industry, more lines of organic food are being introduced in stores as demand for organic products continues to grow. The organic food industry has witnessed high price premiums in the past which, according to economic theory, would in a perfectly competitive market attract entry until those price premiums decreased to the point where economic profits were zero. However, the USDA’s National Organic Certification Cost Share Program, or NOCCP, was introduced in its current form in 2009 and offers reimbursement for farmers who are already certified with certification or recertification costs for their organic farming operation. Since the program only reimburses farmers who have endured the required three year transition period, during which a farmer cannot sell their products as organic and receives no price premium and lower yields, a question arises: Is the NOCCP functioning as an effective barrier to entry and keeping potential farmers out of the market who cannot be first certified to qualify to receive a reimbursement from the NOCCP? Utilizing state-level data from the United States Department of Agriculture’s (USDA) Census of Agriculture, this paper strives to discover if growth in the organic food industry is inorganic and taking place among farms already certified and utilizing the NOCCP. If price premiums remain high while the NOCCP is in place, that may be indicative of the program serving as an effective barrier to entry and helping existing organic farmers maintain economic rents.

Included in

Econometrics Commons

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Inorganic Growth in the Organic Food Industry: Examining Barriers to Entry and Economic Rents

Recently in the organic food industry, more lines of organic food are being introduced in stores as demand for organic products continues to grow. The organic food industry has witnessed high price premiums in the past which, according to economic theory, would in a perfectly competitive market attract entry until those price premiums decreased to the point where economic profits were zero. However, the USDA’s National Organic Certification Cost Share Program, or NOCCP, was introduced in its current form in 2009 and offers reimbursement for farmers who are already certified with certification or recertification costs for their organic farming operation. Since the program only reimburses farmers who have endured the required three year transition period, during which a farmer cannot sell their products as organic and receives no price premium and lower yields, a question arises: Is the NOCCP functioning as an effective barrier to entry and keeping potential farmers out of the market who cannot be first certified to qualify to receive a reimbursement from the NOCCP? Utilizing state-level data from the United States Department of Agriculture’s (USDA) Census of Agriculture, this paper strives to discover if growth in the organic food industry is inorganic and taking place among farms already certified and utilizing the NOCCP. If price premiums remain high while the NOCCP is in place, that may be indicative of the program serving as an effective barrier to entry and helping existing organic farmers maintain economic rents.

 

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