Labor input substitution decisions and business sustainability strategies under changing farm labor market conditions: comparative economic viability analyses of organic and conventional farming systems

Labor input substitution decisions and business sustainability strategies under changing farm labor market conditions: comparative economic viability analyses of organic and conventional farming systems

Summary

Using survey data collected last year from organic and conventional farms in a number of Southeastern states, an analysis was conducted on the impact of hiring constraints and changes in farm labor market conditions, and the ensuing labor and operating management strategies employed by farms, on the technical efficiency of organic and conventional farms. Preliminary results indicate the relative importance of a collective adoption of several adjustment strategies to address labor shortage. Notably, adjusting family labor availability alone is less effective whereas adjusting wage and non-wage benefits of non-family labor is found to be a positive predictor of farm profitability.

Objectives/Performance Targets

1. To determine and compare the strategic plans (or decisions) adopted (or intended to be adopted) by organic and conventional farm businesses in most of the Southeast region in maintaining overall business profitability and viability as farm wage rates increase due to changes in the government’s immigration policies;

2. To identify structural, demographic and economic determinants of farm labor input substitution decisions (i.e. substituting family with hired labor, and vice versa) made by conventional farms and organic farms at various stages of business maturity (such as established versus transitioning organic farms); and

3. To supplement the quantitative research (survey and econometric analyses) approach of objectives 1 and 2 with qualitative case studies designed to analyze relationships of business decisions and strategic actions under a whole-farm perspective, and determine other operational constraints, strategies and their business implications not captured by the other (quantitative) research method used in this study.

Accomplishments/Milestones

On the second year of the grant, efforts were concentrated on putting together several outputs from this research using the survey results compiled from organic and conventional farm respondents in Georgia, Alabama, Mississippi, North Carolina and South Carolina. A paper proposal entitled “The impact of labor constraints on the farm performance: a comparison of organic and conventional farms” was submitted and accepted for presentation at the 2009 annual meetings of the Southern Agricultural Economics Association. The conference was held in February this year in Atlanta. GA.

The study utilized the stochastic frontier model to assess comparative farm performance and impact of different labor management practices employed by organic and conventional farms in the Southeast. This study analyzed the impact of hiring constraints and changes in farm labor market conditions (due to stricter immigration policies) on the technical efficiency of organic and conventional farms. The study’s model and empirical approach is currently being refined to prepare it for submission to a peer-reviewed journal. The re-estimated and re-written manuscript will also be considered for submission to a regional research group’s meeting in the fall of 2009.

Meanwhile, another study is being undertaken which is designed to identify the determinants of organic farms’ demand for non-family labor, given their specific family labor supply constraint, their farming, structural and operational attributes and the availability (and size) of immigrant farm labor supply. Using instrumental variable-Probit estimation approach, this study will analyze data from the 2000-2001 growing season obtained through the Organic Farming Research Foundation’s 4th National Organic Farmers’ Survey. In addition to specific farm characteristics available in the OFRF dataset, the model will be also expanded to include distributional data on illegal alien population obtained from estimates provided the Immigration and Naturalization Service (INS) and the Pew Hispanic Center. This study is being earmarked for submission to another professional conference scheduled for spring or summer of 2010.

A draft of a bulletin that outlines the results of the 2008 farm labor management survey conducted under this project was completed. Currently, the draft is being edited and finalized for printing and dissemination to various commodity associations as well as to the university’s cooperative extension network, which shall further disseminate the results to their clientele in their respective geographical territories.

Prospective participants in the case studies to be undertaken by this project are now being identified and contacted. The case study interviews are scheduled in the summer of this year and will be conducted by a new graduate student hire.

Impacts and Contributions/Outcomes

The stochastic frontier study on technical efficiency will shed light on the relative importance of labor management strategies vis-à-vis other alternative production and operating strategies in influencing the farms’ income potentials. The second study will provide supplementary and complementary results by explicitly introducing the illegal immigration’s influence in determining farm labor hiring decisions in certain areas in the country. The robustness of these quantitative results will be compared with findings of the more qualitative case study interviews, where farmer-respondents will have ample opportunities to substantiate their operating strategies and clarify other approaches that might have been beyond the scope of the surveys and the current analyses.

Collaborators: