Economic impact of quality label and productive efficiency strategies under price and cost risks: the case of Spanish sheep farms.

Abstract

CONTEXT The socio-economic decline of extensive sheep farming caused by its low profitability in southern European Union (EU) regions threatens marginal depopulated rural areas' survival. In the face of new future institutional and climate challenges, there appears to be an urgent need for strategies to improve economic performance. OBJECTIVE This paper aims to evaluate the economic performance and risk of two alternative demand-oriented and productive efficiency strategies: i) protected geographical indication certification, and ii) increased ewe reproduction prolificacy. Method Based on regional farm records and price data and a survey of 54 local farmers, we formulated a stochastic gross margin model to simulate and analyze four strategic scenarios (baseline, quality labelling, productive efficiency, and joint strategies) under two specific stressors, namely decreased lamb prices and increased feeding costs. RESULTS AND CONCLUSIONS We found that feeding costs constitute the main risk factor, whereas price instability has less influence. Our findings highlight improvements in performance under a quality scenario, albeit with higher vulnerability to price variability with respect to the baseline scenario. In contrast, the productive efficiency scenario performs much better in terms of average gross margin and reduced vulnerability to feeding costs, albeit with a larger variation for the expected outcomes. SIGNIFICANCE The paper casts light on the vulnerability of the quality label under price risk, and suggests the potential for the joint implementation of both quality production and productive efficiency strategies, which could compensate for their respective weaknesses.