Determinants of Economic Growth in Organic Farming: The Case of Bavaria and Baden-Wuerttemberg

The organic sector in Germany has experienced a substantial growth since the beginning of the 1990s until today. During this process of expansion, most organic farms have grown in terms of factor endowment, while others have disappeared or reconverted to conventional agriculture. This paper investigates the potential determinants of farms growth in the organic sector. This paper models potential factors that might have an impact on the economic growth of 332 organic farms in Bavaria and Baden-Wuerttemberg. The econometric model was developed based on ‘Gibrat’s Law’, using a fixed effect method (FE). The results suggest that direct marketing and livestock intensity significantly influence farm growth. In addition, less efficient farms grew faster than more efficient ones. This outcome can be explained by the economic pressure on inefficient firms for adaptation during the growth and survival process