Economic analyses of organic farming: The case of Kona coffee industry in Hawaii

With the decline in pineapple and sugar cane, the coffee industry has increased its importance in Hawaii's agriculture. Organic Kona coffee production is a relatively new commercial endeavor. Still plagued with technical production problems such as insect and weed control, organic Kona coffee is viewed as appealing to the organic food movement while commanding a higher price than conventional Kona coffee.; The primary objective of this study is to compare the efficiency, profitability, and environmental impacts of organic Kona coffee production with conventional Kona coffee production. The optimal control theorem is applied and within the framework of environmental resource economics, organic farming is modeled as a sustainable production system with positive environmental externality. The conventional farming system is also modeled with negative environmental externality. Total welfare is calculated for each model and the conditions under which both welfare values are equal are examined.; This comparison also focuses on the quantitative analysis of efficiency. Data collection involved interviewing 23 organic and 42 conventional Kona coffee farmers. According to the SPF (stochastic production frontier) analysis, the mean efficiency is 0.5775 for organic Kona coffee farming and 0.4696 for conventional Kona coffee farming. Fully efficient farms exist in both farming systems which suggests that other Kona coffee farms can increase their productivity.; For the Kona coffee belt, the allocation of organic and conventional Kona coffee farms is important not only for profitability but also for examining environmental effects. The optimal control model applies the MCDM (multi-criteria decision making) approach which harmonizes net returns with environmental goals. Ensuing analysis determines the optimal proportion of organic and conventional Kona coffee farming fields as 0.25 to 0.75 in terms of optimizing community benefits or regional welfare. This optimization also requires a reduction in chemical inputs used in conventional farming as well as an increase in efficiency for both farming systems. The sensitivity analysis suggests that the chemical inputs reduction strategy (the Lagrange multiplier is -0.6855) has a larger impact in increasing regional welfare than the net returns increase strategy (-0.3145).