sustainability

Article
Economic Sustainability of Organic Aloe Vera
Farming in Greece under Risk and Uncertainty
Angelos Liontakis and Irene Tzouramani *,
Agricultural Economics Research Institute, Terma Alkmanos str. P.C. Athens 11528, Greece; aliontakis@agreri.gr
* Correspondence: tzouramani@agreri.gr; Tel.: +30-210-2756-596 (ext. 2); Fax: +30-210-2751-937
These authors contributed equally to this work.

Academic Editor: Filippo Sgroi

Received: 17 February 2016; Accepted: 30 March 2016; Published: 6 April 2016

Abstract: During the last decade, an encouraging environment for the restructuring and
modernization of the agricultural sector has formed in Greece. The diversification into higher-value
crops can be a promising option for small and average-sized farms, particularly during the current
economic crisis. One of the most promising alternative crops that have been recently established
in Greece is the organic Aloe vera crop. The main advantage of this crop is that it can utilize poor
farmlands and, therefore, can facilitate rural development in marginal areas. This study explores
the economic sustainability of the Aloe vera crop, considering the embedded risk and uncertainty.
The results indicate that organic aloe farming is a promising alternative to traditional crops in
Greece, particularly for family farms in rural areas. In contrast, this activity is not advisable to the
most entrepreneurial type of farmers, unless their crop size allows economies of scales. Finally, the
Stochastic Efficiency with Respect to a Function (SERF) analysis associates farmers risk attitude with
their willingness to be involved in organic Aloe vera farming. SERF analysis highlights the crucial role
of farmers risk aversion and concludes that, above a certain level of risk aversion, farmers have no
incentive to adopt this economic activity.

Keywords: Aloe vera; organic agriculture; stochastic budgeting model; risk; uncertainty

1. Introduction
During the last decade, an increasing trend to establish new alternative crops has appeared in
Greece. These crops are promising alternatives to traditional, low-production cultivations. It is
widely acknowledged that the diversification into higher-value crops could be a promising option
for a large number of small and average-sized farms, particularly during the current economic crisis,
advancing the climate-smart agricultural approach [1].
Many of the suggested alternatives have remarkable advantages, such as the ability to grow in
poor farmlands, utilizing sodic soil and poor quality irrigated water. This poor farmland is a common
situation in several areas in Greece, such as the Aegean islands. Indeed, the economic utilization of
sodic lands is a challenging task [2]. In sodic soils, plant growth suffers due to various constraints,
which negatively affect the plant productivity and growth [3,4].
One of the most promising alternative crops that have been established rapidly and massively in
Greece in the last few years is the organic Aloe vera L. (A. vera). Aloe vera farming is gaining momentum
in recent years because of its growing importance and increasing market demand [5]. Aloe plantations
were first established in Greece in the south area of Crete in the 1990s. During the past five years, the
cultivation has expanded on several Aegean islands, in Peloponnesus, and the south part of the Greek
mainland [6].
Aloe vera is a perennial plant, native to the Mediterranean region, that can utilize sodic
lands [2,711]. Aloe vera is the most popular among 400 aloe species due to its potent biological

Sustainability 2016, 8, 338; doi:10.3390/su8040338 www.mdpi.com/journal/sustainability

Sustainability 2016, 8, 338 2 of 13

activity and its wide availability [5]. Many biological activities have been attributed to this plants
gel [1217] whereas its usage in numerous medical and cosmetic applications since ancient times is
well-known [18,19]. Moreover, there is a remarkable recently developed on-going literature regarding
the effect of on-farm practices on the quantity and quality of the Aloe vera gel [5,2023].
In this study, we explore the economic sustainability of organic Aloe vera crops, using data from
33 organic aloe producers. To incorporate the embedded risk and uncertainty, stemming from the
achieved yields and the market structure, into the analysis, we apply stochastic budget modelling.
Moreover, the effect of the market failure to fully absorb yields and the effect of the change in the
tax regime (institutional risk) are explored using sensitivity analysis. Finally, we estimate certainty
equivalents (CE) to illustrate farmers willingness to establish an organic Aloe vera crop, relative to
their risk aversion attitude.
The remainder of this paper is organized as follows. The next section describes the applied
methodology and the data used in the study. The empirical application is then illustrated and
discussed. This paper ends with a brief summary of the main findings and certain concluding remarks.

2. Materials and Methods

The economic sustainability of organic Aloe vera farming is approached through two main
economic indicators: net profit (NP) and family farm income (FFI). Although the first is the most
commonly used indicator for the evaluation of various economic activities, FFI has distinct importance
in agriculture and is closely related to the notion of economic sustainability. FFI indicates the reward
of the production factors that belong to the family; thus, it is a measure of its wealth.
Using FFI as the appropriate indicator for economic sustainability has also been applied by
van Calker et al. [24,25], whereas numerous articles focus on this index to evaluate the economic
performance in agricultural enterprises (e.g., [2629]). In Greece, the agricultural households usually
own the farmland and the capital. Therefore, the family farm income is calculated as the sum of the
net profit, the implicit rent of the farmland, the implicit cost of family labor, and the opportunity cost
of family-owned capital (interests).
Conversely, NP is a more proper indicator of economic sustainability for a more business type of
farming, where the agricultural enterprise is closer to a typical economic activity rather than to a family
farming activity. Therefore, in this study, we consider FFI as the proper indicator when considering the
wealth and the economic sustainability of a family farm, and NP as the proper economic indicator for
a more entrepreneurial agricultural enterprise.
To incorporate risk and uncertainty in the estimation of NP and FFI, we implement the stochastic
budget simulation modelling. In this model, the variables that incorporate risk and uncertainty are
introduced in the budget analysis not in a deterministic but in a stochastic manner. More specifically,
the stochastic variables take their values randomly from a pre-specified distribution.
Organic aloe farmers encounter two outstanding sources of risk. First, they encounter yield risk
because the Aloe vera crop is exposed both to weather conditions and to pests and diseases. This risk
becomes more important, considering that aloe crops are not yet insured by the national agricultural
insurance agency; in addition, there is a lack of historical data on yields.
The second source of risk stems from the market and relies on producers prices and quantities
that are distributed through each available market channel. Since the market channels for organic
Aloe vera leaves are not yet well established in Greece, there is a high vulnerability of price levels and
an intense uncertainty on the total volumes that these markets can distribute. Three main marketing
channels are identified in Greece. The first refers to the existing processing units located in Greece,
which has a (yet small) demand for organic Aloe vera leaves. The second refers to special retail markets
(such as pharmacies, organic groceries, and delicatessen supermarkets) where fewer quantities are
released, but at much higher producer prices. Finally, a few direct sales to sophisticated consumers at
higher prices have also been reported.
Sustainability 2016, 8, 338 3 of 13

Due to the establishment of an organic Aloe vera farm being a risky economic activity, its adoption
relies on the risk attitude of the potential aloe bio-farmers. Individuals with high risk aversion levels
may prefer a more traditional crop, with less risky prospects. To quantify the risk attitude of the
potential aloe bio-farmers and to assess their willingness to establish an organic aloe crop, we apply
the stochastic efficiency with respect to a function (SERF) analysis, which was first introduced by
Hardaker et al. [30]. SERF analysis allows the comparison of risky alternatives and provides a graphical
representation of the results with different risk preferences in a transparent manner. Moreover, SERF
computes the certainty equivalent (CE) over a range of relative risk aversion coefficients. The CE is
equal to the amount of payoff a farmer would require to be indifferent between that payoff and the
risky activity [30,31]. The CEs are readily interpreted because, in contrast to utility values, they are
expressed in monetary terms.
For a risk-averse decision maker, the estimated CE is typically less than the expected money
value. The difference between the expected money value and the CE is the risk premium [30,32], which
reflects the minimum amount that would need to be paid to a decision maker to justify his involvement
in organic aloe farming. Intuitively, a positive certainty equivalent reveals that the potential farmer is
willing to be involved in this activity; conversely, if the certainty equivalent is negative, the farmer will
reject that economic prospect [30].

2.1. Model Specification

The stochastic budget simulation model for NP is as follows:

NP
Yp
r yri P
ri q VC
CC (1)
i

where:

Y:
r Stochastic yield of the organic aloe crop (tons of harvested leaves)

yri : Stochastic absorption (%) of the yield from the market channel i ( yri 1)
Pri : Stochastic price of the organic aloe leaves in market channel i
VC:
Stochastic variable cost of organic aloe farming. The stochasticity of this factor emerges from the
stochastic cost of harvesting and shipping of organic Aloe vera leaves, which in turn depends on the
(stochastic) yield of the Aloe vera crop.
CC: Capital cost of organic aloe farming

Furthermore, the simulation model for the FFI is as follows:

FFI
NP ` Land ` FL
` OCC (2)

where:

Land: implicit cost (rent) of the family-owned farmland

FL:
The implicit cost of family labor. This variable has a stochastic component due to the family labor
demand for harvesting, which, in turn, depends on stochastic yields.
Interests : The opportunity cost of family-owned capital.

Each stochastic model estimates the probability of each level of the independent variable (NP and
FFI) to occur, providing a range, with minimum, maximum and mode values. Moreover, the model
provides the probability of a negative value and, therefore, the probability of losses. The distributions
of NP and FFI were developed in the Simetar 2011 environment. Simetar 2011 simulates a probability
distribution based on the stochastic variables defined. A Latin Hypercube simulation was used instead
of the most popular, but less efficient, Monte Carlo simulation [30,31,33].
Sustainability 2016, 8, 338 4 of 13

2.2. Data Description

Data used in this analysis were obtained by personal interviews with 33 Aloe vera producers in
several areas
Sustainability in Greece,
2016, 8, 338 particularly in the Aegean islands, Peloponnesus, and Crete (Figure 1), using a
4 of 13
detailed socioeconomic questionnaire. Organic Aloe vera farmers provide detailed historical data on
the establishment
the establishment cost of an an Aloe
Aloe vera
vera crop
crop as
as well
well as
as the
the annual
annual costs
costs of
of the
the crop.
crop. However,
However, inin the
the
revenuespart,
revenues part,because
becausethethevast
vastmajority
majorityofof
thethe farmers
farmers have
have distributed
distributed veryvery minimal
minimal quantities
quantities in
in the
the markets, many of them, only report their
markets, many of them, only report their expectations. expectations.

No plantation

1 plantation

2 plantations

3 plantations

7 plantations

Figure 1. Density
Figure 1. Density of organic Aloe
of organic Aloe vera
vera plantations
plantations in
in the
the sample.
sample.

It must
It must be
be noted
noted that
that the
the average
average farm
farm size
size of
of the
the sample
sample is
is very
very low
low (less
(less than
than 0.2
0.2 ha),
ha), whereas
whereas
only one
only one farm
farm has
has aa size
size larger
larger than
than one
one hectare.
hectare. Therefore,
Therefore, aloe
aloe farms are not scale efficient
efficient and
and they
cannot take
cannot take advantage
advantage of of economies
economies ofofscale
scale to
tolower
lowertheir
theirannual
annualcosts.
costs.

2.2.1.
2.2.1. Revenues
Revenues
(1): Yp
r
The
The estimation
estimation of the revenues is based on the sum of of the
the right
right side
side of
of Equation
Equation(1): Y (y Prii)q..
ryi P
i
Utilizing the data collected as well as experts advice, the stochastic yield (Y)
r is approached by a GRKS
Utilizing the data collected as well as experts advice, the stochastic yield ( Y ) is approached by a
distribution with modified tails. This distribution is, in fact, a modified triangular distribution and
GRKS distribution with modified tails. This distribution is, in fact, a modified triangular distribution
called GRKS distribution after for its developers, Gray, Richardson, Klose, and Schuman [34]. The
and called GRKS distribution after for its developers, Gray, Richardson, Klose, and Schuman [34].
GRKS distribution is useful when minimal information is available about the distribution, requiring
The GRKS distribution is useful when minimal information is available about the distribution,
only minimum, mid-point, and maximum values as the bounds for the distribution [34]. The GRKS
requiring only minimum, mid-point, and maximum values as the bounds for the distribution [34].
distribution assumes that 50% of the observations are greater than the mode value. Additionally, the
The GRKS distribution assumes that 50% of the observations are greater than the mode value.
distribution draws 2.28% of the values from above the maximum and 2.28% from below the minimum.
Additionally, the distribution draws 2.28% of the values from above the maximum and 2.28% from
However, in this study, the tails of the GRKS distribution were altered in such a way that the maximum
below the minimum. However, in this study, the tails of the GRKS distribution were altered in such
and minimum probabilities of occurrence are 10%, each. The min, the mid, and the max value of this
a way that the maximum and minimum probabilities of occurrence are 10%, each. The min, the mid,
distribution are presented in Table 1.
and the max value of this distribution are presented in Table 1.

Table 1. Stochastic variables used in the stochastic simulation models (1) and (2).

Distribution Main Characteristics

Stochastic Variables Description
Min. Max. Mid
Stochastic yield of organic aloe
Y 35 75 50
vera leaves (tones per ha)
Stochastic producer price of organic
P1 0.2 0.6 0.4
aloe leaves in the processing unit (/kg)
Stochastic producer price of organic
P2 2.5 4.5 3.5
aloe leaves in the retail markets (/kg)
 Sustainability 2016, 8, 338 5 of 13

Table 1. Stochastic variables used in the stochastic simulation models (1) and (2).

Stochastic Distribution Main Characteristics

Sustainability 2016, 8, 338 Description 5 of 13
Variables Min. Max. Mid
Stochastic yield
Stochastic of organic
producer aloeof organic
price
P3 Y
r 35 6 75 9.3 50 7
vera leaves (tones per ha)
aloe leaves in direct sales (/kg)
Stochastic producer price of organic
Pr1 0.2 0.6 0.4
aloeStochastic processing
leaves in the units
processing unitabsorption
(/kg)
y1 70% 100% 90%
of yieldproducer price of organic
Stochastic
Pr2 2.5 4.5 3.5
aloe leaves in the retail markets (/kg)
Stochastic retail markets absorption of
y2 Stochastic producer price of organic 0% 27% 9%
Pr3 6 9.3 7
aloeyield
leaves in direct sales (/kg)
yr Stochastic
Stochastic direct sales
processing units absorption of yield
absorption of 70% 100% 90%
y3 1 0% 3% 1%
yr2 yield retail markets absorption of yield
Stochastic 0% 27% 9%
yr3 Stochastic direct sales absorption of yield 0% 3% 1%
The price data are the most intriguing part of this study because the markets are not yet well
established. Using
The price data theare
most
therelevant information
most intriguing partfrom thestudy
of this markets, as well
because theasmarkets
the expectations of well
are not yet the
producers, we construct six stochastic variables based on different triangular distributions.
established. Using the most relevant information from the markets, as well as the expectations of theThe first
three variables
producers, ( Pi ) regard
we construct sixthe prices variables
stochastic that farmers encounter
based in the
on different three corresponding
triangular market
distributions. The first
channels (processing
three variables units,
( Pi ) regard
r theretail
pricesmarkets, and encounter
that farmers direct sales). The
in the next
three three variables
corresponding regard
market the
channels
percentage
(processingofunits,
the production that each
retail markets, marketsales).
and direct channel
Thedistributes
next three(variables
yi ) (see Table
regard1). the percentage of
the Given
production that each
the above market channel
stochastic variables, revenues(yrper
distributes i ) (see
ha Table 1).
are estimated stochastically and are
Given
illustrated in the above
Figure stochastic
2, while Table 2variables, revenues
presents their per values.
expected ha are estimated
According stochastically
to Figure 2, in and are
95% of
cases, revenues fluctuate from 8,000 /ha to 80,000 /ha, whereas the mode value is approximatelyof
illustrated in Figure 2, while Table 2 presents their expected values. According to Figure 2, in 95%
revenues fluctuate from 8,000 /ha to 80,000 /ha, whereas the mode value is approximately
cases,/ha.
50,000
50,000 /ha.

/ha

Figure
Figure2.2.Distribution
Distributionofofrevenues
revenuesfrom
fromorganic
organicAloe
Aloevera
verasales.
sales.* dotted
* dottedvertical
verticallines
linesinclude
includethe
the90%
90%
ofofthe
thevalues,
values,while
whilethe
thecontinuous
continuousline
linepresents
presentsthe
theaverage
averagevalue.
value.

Table
Table2.2.Average
Averagerevenues
revenues(/ha)
(/ha)from
fromorganic
organicAloe
Aloevera
veraleaves
leavessales.
sales.

Market Channel Quantity (tones) % of Total Price (/kg) Revenues

Market Channel Quantity (tones) % of Total Price (/kg) Revenues
Processing Unit 43.33 86.67% 0.40 17,333
Processing Unit 43.33 86.67% 0.40 17,333
Retail Markets 6.00 12.00% 3.50 21,000
Retail Markets 6.00 12.00% 3.50 21,000
Directsales
Direct sales 0.67
0.67 1.33%
1.33% 7.43
7.43 4956
4956
Total
Total 50.00
50.00 43,289
43,289

2.2.2.
2.2.2.Cost
CostofofProduction
Production
Table
Table33 presents
presents thethe expected
expected annual
annual production
production costs.
costs. The
Themost
mostimportant
importantelement
elementofofthe
the
production
productioncostcostisisthe
theannual
annual cost
cost of
of capital,
capital, which
which contributes to 42%
contributes to 42% of
of total
totalexpenses.
expenses.This
Thisfinding
findingis
isprimarily
primarilythethe outcome
outcome of the
of the extremely
extremely highhigh shoots
shoots priceprice to establish
to establish the However,
the crop. crop. However, this
this finding
finding is also encouraged by the small size of the farms, which does not utilize
is also encouraged by the small size of the farms, which does not utilize economies of scale. economies of scale.
Labor cost and variable costs are very similar (approximately 26% of total cost), whereas the cost
of farmland (rent) constitutes 6% of the total costs. The family labor contributes to approximately 80%
of the labor cost, which indicates that the farmers utilize family labor and hire labor only occasionally
(at peak seasons, such as harvesting). Regarding the variable costs, it is important to mention the
shipping costs as an important cost element. Considering that this factor varies greatly on the
Sustainability 2016, 8, 338 6 of 13

Sustainability 2016, 8, 338 6 of 13

Table 3. Annual production costs of organic Aloe vera crop.
accessibility of the farm to the processing unit, it can vitally affect the geography of the cultivation,
particularly if revenues are not much higher
Cost Items than production
Value (/ha) Valuecosts.
(/kg) % of total
Land 2038 0.04 6%
Labor Table 3. Annual production
8842 costs of organic
0.16Aloe vera crop. 26%
Family 6843 0.12 20%
Cost Items Value (/ha) Value (/kg) % of total
Hired 1917 0.03 6%
CapitalLand 23,475 2038 0.42 0.04 68%6%
VariableLabor
costs 9125 8842 0.16 0.16 27%26%
Irrigation 701 0.01 2%
Family
Fertilizers/Pesticides 875 6843 0.02 0.12 3%20%
Hired
Other variable costs 1862 1917 0.03 0.03 5%6%
Transportation 5687 0.10 17%
Capital 23,475 0.42 68%
Fixed costs 14,349 0.27 42%
Annual Variable costs
depreciation 10,863 9125 0.20 0.16 32%27%
Interest rates of Capital
Irrigation 2580 701 0.05 0.01 7%2%
Other capital costs 906 0.02 3%
Fertilizers/Pesticides 875 0.02 3%
Total 34,355 0.62
Other variable costs 1862 0.03 5%
Transportation 5687 0.10 17%
Labor cost and variable costs are very similar (approximately 26% of total cost), whereas the cost
Fixed costs 14,349 0.27 42%
of farmland (rent) constitutes 6% of the total costs. The family labor contributes to approximately 80%
of the labor cost, Annual depreciation
which indicates that the farmers10,863
utilize family labor0.20
and hire labor32%
only occasionally
(at peak seasons,Interest
such rates of Capital Regarding2580
as harvesting). 0.05
the variable costs, 7%to mention the
it is important
shipping costs asOther capital costs
an important 906
cost element. Considering 0.02 factor varies
that this 3%greatly on the
accessibility of the farmTotal
to the processing unit, it34,355
can vitally affect the
0.62geography of the cultivation,
particularly if revenues are not much higher than production costs.
3. Results and Discussion
3. Results and Discussion
3.1. Stochastic Budget Modelling
3.1. Stochastic Budget Modelling
The estimations of models (1) and (2) provide the stochastic NP and FFI from the organic Aloe
The estimations models (1) and (2) provide the stochastic NP and FFI from the organic Aloe vera
of

vera activity ( , respectively). The descriptive statistics of each indicator are provided in
NP and FFI,
activity ( respectively). The descriptive statistics of each indicator are provided in
Table 4. Moreover, the cumulative distribution functions (CDFs) of these indicators are constructed
Table 4. Moreover, the cumulative distribution functions (CDFs) of these indicators are constructed to
to demonstrate that the probability of each indicator (on the Y-axis) is less than a particular level (on
demonstrate that the probability of each indicator (on the Y-axis) is less than a particular level (on the
the X-axis) (Figure 3).
X-axis) (Figure 3).

1.1
1.0
0.9
0.8
0.7
0.6
Prob

0.5
0.4
0.3
0.2
0.1
0.0
-40,000 -20,000 0 20,000 40,000 60,000 80,000
/ha

Variable 1 Variable 2

Figure 3. Cumulative distribution functions (CDFs) of the NP and FFI from the organic Aloe vera crop.
Figure 3. Cumulative distribution functions (CDFs) of the NP and FFI from the organic Aloe
vera crop.

Table 4. Descriptive statistics of the stochastic NP and FFI from the organic Aloe vera crop.

Net Profit (/ha) Family Farm Income (/ha)

Average 7814 18,632
St. dev. 13,716 14,072
Sustainability 2016, 8, 338 7 of 13

Table 4. Descriptive statistics of the stochastic NP and FFI from the organic Aloe vera crop.

Net Profit (/ha) Family Farm Income (/ha)

Sustainability 2016, 8,Average
338 7814 18,632 7 of 13
St. dev. 13,716 14,072
CV CV 176
176 76 76
Minimum Minimum 25,652
25,652 16,805
16,805
Maximum Maximum 57,817
57,817 69,46269,462
Probability of value <0 27.11% 8.91%
Probability of value <0 27.11% 8.91%

The break-even
The break-even analysis
analysis indicatesthat
indicates that the
the expected
expected break-even
break-even yield is equal
yield to 35totons
is equal per ha,
35 tons per ha,
which which corresponds
corresponds to to approximatelyseven
approximately seven aloe
aloe leaves
leavesper perplant
plant of of
approximately
approximately 500 g500 each.
g each.
Additionally,
Additionally, the expected
the expected break-even
break-even price(covering
price (covering direct
direct costs)
costs)isisequal
equal to to
0.25 /kg.
0.25 Therefore,
/kg. a
Therefore, a
farmer who distributes organic Aloe vera leaves only to processing units may not cover the direct
farmer who distributes organic Aloe vera leaves only to processing units may not cover the direct costs,
costs, considering that the minimum producer price in this market channel is equal to 0.2.
considering that the minimum producer price in this market channel is equal to 0.2.
Figure 3 and Table 4 reveal that, on average, an organic Aloe vera plantation produces positive
Figure 3 and Table 4 reveal that, on average, an organic Aloe vera plantation produces positive
NP and FFI. However, there is an important variability in the results that reflects the riskiness of this
NP andactivity. However,
FFI. In addition,there
there isis an important
a high probability variability in the
for negative NPresults
(27%) but that
notreflects the riskiness
for negative FFI (<9%). of this
activity. In addition, there is a high probability for negative NP (27%) but
Considering that, according to 2011 EU-SILC survey, a relative poverty threshold for Greece at not for negative FFI (<9%).
Considering that,
13,842 for according tohousehold
a four-member 2011 EU-SILCwith twosurvey,
adultsa relative
and twopoverty
childrenthreshold for Greece
[35], on average, at 13,842
the size of
for a the crop shouldhousehold
four-member be at least 0.75
withhatwo
to cover the and
adults living costchildren
two of four-member
[35], onhousehold
average, the in Greece.
size of the crop
should beAatcloser
leastexamination of the formation
0.75 ha to cover the livingofcost the of
stochastic revenues
four-member (see Table 2)
household inindicates
Greece. that while
the vast majority of the production is distributed to the processing
A closer examination of the formation of the stochastic revenues (see Table 2) units market channel, the that
indicates mainwhile
part of the revenues stems from the other two market channels, which provide higher producer prices
the vast majority of the production is distributed to the processing units market channel, the main part
for the organic Aloe vera leaves. Indeed, although 87% of the production is distributed to processing
of the revenues stems from the other two market channels, which provide higher producer prices for
units, the corresponding revenues are 40% of total (17,333 /ha of 43,289 /ha). Conversely, the other
the organic Aloe vera leaves. Indeed, although 87% of the production is distributed to processing units,
two marketing channels distribute 13% of the production; however, they contribute 60% of total
the corresponding
revenues. revenues are 40% of total (17,333 /ha of 43,289 /ha). Conversely, the other two
marketingTherefore,
channels thedistribute 13% ofofthe
lower levels production;
revenue however,
are achieved when theythecontribute
quantities 60% of total
absorbed byrevenues.
the
Therefore,
processing the
unitlower levels
are high of revenue
and/or are achieved
the producer price at when the quantities
this market channel is absorbed
low. To by the processing
visualize the
unit are high and/or the producer price at this market channel is low. To visualize the importance
importance of these two factors, we alter the stochastic budget model; first, by turning P1 into a of
thesedeterministic
two factors, variable
we alterwith
the stochastic
value equalbudget model; first,
to the minimum by GRKS
of the turning P1 into a deterministic
distribution
r of price (0.2), andvariable
with second by turning
value equal y1 into a deterministic
to the minimum of the GRKS variable with of
distribution theprice
maximum
(0.2), and value (100%)
second by of the y
turning r1
into acorresponding
deterministicGRKSvariable with the maximum value (100%) of the corresponding GRKS distribution.
distribution.
The The results
results areare presentedin
presented in Figures
Figures 44and and5, 5respectively.
respectively. In both cases cases
In both (and particularly in the in
(and particularly
former), there
the former), there are
are severe
severe consequences
consequences totoboth botheconomic
economicsustainability
sustainability indicators.
indicators.This This
resultresult
emphasizes the fact that the processing units should provide a fair producer price level to ensure the
emphasizes the fact that the processing units should provide a fair producer price level to ensure the
sustainability of the organic aloe farms. Additionally, organic aloe producers cannot solely rely on
sustainability of the organic aloe farms. Additionally, organic aloe producers cannot solely rely on the
the processing units for the distribution of their yields. The producers also have to utilize the other
processing units for the distribution of their yields. The producers also have to utilize the other two,
two, more efficient market channels.
more efficient market channels.
1.2

1.0

0.8
Prob

0.6

0.4

0.2

0.0
-30,000 -20,000 -10,000 0 10,000 20,000
/ha

Profit Family Farm Income

Figure 4. Cumulative distribution functions (CDFs) for the NP and FFI from the production of organic
Figure
Aloe vera 4. Cumulative
leaves when thedistribution
processingfunctions (CDFs)
unit price for theitsNP
achieves and FFI from
minimum the(0.2
value /kg). of organic
production
Aloe vera leaves when the processing unit price achieves its minimum value (0.2 /kg).
Sustainability 2016, 8, 338 8 of 13
Sustainability 2016, 8, 338 8 of 13

1.2

1.0

0.8

0.6

0.4

0.2

0.0
-40,000 -20,000 0 20,000 40,000 60,000 80,000

Profit Family Farm Income

Figure 5. Cumulative distribution functions for the NP and FFI from the production of organic Aloe
Figure 5. Cumulative distribution functions for the NP and FFI from the production of organic Aloe
vera leaves when the quantities distributed to the processing units marketing channel achieve their
vera leaves2016,
Sustainability when the quantities distributed to the processing units marketing channel achieve9 their
8, 338 of 13
maximum level (100%).
maximum level (100%).
1
3.2.
3.2. Sensitivity
Sensitivity Analysis
Analysis
0.8
In
In the stochastic models
the stochastic models (1) (1) and
and (2),(2), we
we incorporate
incorporate the the risk
risk and
and uncertainty
uncertainty associated
associated withwith
0.6
several factors that affect NP and FFI. However, there are also certain other critical factors of high
Prob

several factors that affect NP and FFI. However, there are also certain other critical factors of high
importance
importance that that can
can greatly
greatly affect
affect thethe level
level of
0.4
of these
these economic
economic indicators.
indicators. The The effect
effect of
of these
these factors
factors isis
examined using the sensitivity
examined using the sensitivity analysis. analysis. 0.2
The
The first critical factor
first critical factor isisrelated
relatedtotothe themarket
marketabsorption
absorption ofofthethe yields.
yields. In models
In models (1) (1)
andand(2), (2),
we
0
we assume that y 1, (i.e.,
ri -30,000 total market 0 absorption
10,000 20,000 of the yields).
assume that yi 1 , (i.e., total market absorption of the yields). However, the absence of a well-
-20,000 -10,000 30,000 40,000 50,000 However,
60,000 the absence of a
well-established market channel as well100% as the economic
90% crisis80%can create70%several distortions and cannot
established market channel as well as the economic crisis can create several distortions and cannot
guarantee the full market absorption of the yields. Sensitivity analysis reveals how the levels of the
guarantee the full market absorption of the yields. Sensitivity analysis reveals how the levels of the
economicFigureindicators changed
6. Sensitivity when
analysis the on
results market absorption
the effect of the
of low market organicofleaves
absorption is 90%,
aloe leaves on the80%,
NP and 70%
economic indicators
Sustainability 2016, 8, 338changed when the market absorption of the organic leaves is 90%, 80%, 9 of and
13 70%
(Tables 5 and 6 Figures 6 and 7).
of the farms.
(Tables 5 and 6, Figures 6 and 7).
The Table
results of the analysis
6. Sensitivity analysisindicate
results onthat the effects
1the effect are more
of low market severe
absorption of on
aloethe netonprofit
leaves the FFIofofthe farms.
In the case the of
farms.
70% market absorption,0.8the average value is negative, whereas the possibilities for
negative NP values increase to 44.18%, indicating a very
Family risky
Farm economic
Income (/ha) activity. The effects on the
0.6
FFI are less severe but also important. A 70% market absorption of the leaves affects, by more than
Prob

Level of Market Absorption

50%, the expected level of FFI, whereas 0.4
the possibilities of a negative
100% 90% 80%value increases 70% to 20%.
Average 18,632
0.2 15,281 11,902 8463
Table 5. Sensitivity analysis results 14,072
St. Dev. on the effect of low market absorption
12,750 11,480 of aloe leaves
10,216 on the NP of
0
the farms. CV-30,000 -20,000 -10,00076 0 83 30,000 40,000 96
10,000 20,000 50,000 60,000 121
Minimum 16,805 16,809 16,815 16,820
100% 90%
Maximum 69,462 Net80%
53,288
70%
Profit (/ha)
45,836 38,382
Probability of value Level of Market Absorption
Figure 6. Sensitivity
Figure 6. Sensitivityanalysis
analysisresults on
on the
results 8.91% effect of
the effect oflow
low marketabsorption
11.05%
market absorption
14.18% of aloe
of aloe leaves
20.01%
leaves on NP
on the the NP of
the farms. <0 100% 90% 80% 70%
of the farms.
Average 7814 4463 1084 2355
St. Devresults on1the effect
Table 6. Sensitivity analysis 13,716 12,404
of low market absorption11,136
of aloe leaves9,875
on the FFI of
0.9
the farms. CV 0.8
176 278 1028 419
Minimum 0.7 25,652 25,658
Family Farm Income25,663
(/ha) 25,669
0.6
Maximum 57,817 41,644 34,191 26,738
Prob

0.5 Level of Market Absorption

Probability of value100% <0
0.4 27.11% 90%28.35% 80% 34.63% 44.18%
70%
0.3
Average 18,632
0.2 15,281 11,902 8463
St. Dev. 14,072
0.1 12,750 11,480 10,216
0
CV -30,000 -20,000 -10,000 76 0 10,000 20,000 8330,000 40,000 50,00096 60,000 70,000 121
Minimum 16,805
100% 90%
16,809 80% 16,815 70%
16,820
Maximum 69,462 53,288 45,836 38,382
Probability of value
Figure 7. Sensitivity analysis results8.91% on the effect of11.05%
low market absorption
Figure 7. Sensitivity
14.18% of aloe leaves on the NP of
20.01%
the farms. <0 analysis results on the effect of low market absorption of aloe leaves on the NP
of the farms.

1
The second critical factor regards
0.9 the tax regime. Until recently, farmers enjoyed an attractive
tax regime, which did not significantly
0.8 affect their economic results. However, the recent reform of
the tax regime includes a 13% tax 0.7
on
0.6
the profits of the farmers; this has already been incorporated
into the analysis. Moreover, in the0.5near future, the alignment of farmers tax regime to that of the
Prob

0.4
Sustainability 2016, 8, 338 9 of 13

Table 5. Sensitivity analysis results on the effect of low market absorption of aloe leaves on the NP of
the farms.

Net Profit (/ha)

Level of Market Absorption
100% 90% 80% 70%
Average 7814 4463 1084 2355
St. Dev 13,716 12,404 11,136 9,875
CV 176 278 1028 419
Minimum 25,652 25,658 25,663 25,669
Maximum 57,817 41,644 34,191 26,738
Probability of value <0 27.11% 28.35% 34.63% 44.18%

Table 6. Sensitivity analysis results on the effect of low market absorption of aloe leaves on the FFI of
the farms.

Family Farm Income (/ha)

Level of Market Absorption
100% 90% 80% 70%
Average 18,632 15,281 11,902 8463
St. Dev. 14,072 12,750 11,480 10,216
CV 76 83 96 121
Minimum 16,805 16,809 16,815 16,820
Maximum 69,462 53,288 45,836 38,382
Probability of value <0 8.91% 11.05% 14.18% 20.01%

The results of the analysis indicate that the effects are more severe on the net profit of the farms.
In the case of 70% market absorption, the average value is negative, whereas the possibilities for
negative NP values increase to 44.18%, indicating a very risky economic activity. The effects on the FFI
are less severe but also important. A 70% market absorption of the leaves affects, by more than 50%,
the expected level of FFI, whereas the possibilities of a negative value increases to 20%.
The second critical factor regards the tax regime. Until recently, farmers enjoyed an attractive tax
regime, which did not significantly affect their economic results. However, the recent reform of the tax
regime includes a 13% tax on the profits of the farmers; this has already been incorporated into the
analysis. Moreover, in the near future, the alignment of farmers tax regime to that of the enterprises in
the other sectors of the economy, is expected to occur. Until year 2015, this level was equal to 26%.
To consider that risk, we conduct a sensitivity analysis on the effect of the tax rate to the indicators
of economic sustainability. More specifically, we explore two scenarios: the first is the tax-free scenario;
the second is the 26% tax scenario. The results of this analysis are presented in Tables 7 and 8.

Table 7. Sensitivity analysis on the effects of the tax rate on NP.

Net Profit (/ha)

13% tax No tax 26% tax
Average 7814 9329 6291
St. Dev. 13,716 15,173 12,218
CV 176 163 194
Minimum 25,652 25,652 25,652
Maximum 57,817 65,333 53,117
Probability of value <0 27.11% 27.11% 27.11%
Sustainability 2016, 8, 338 10 of 13

Table 8. Sensitivity analysis on the effects of the tax rate on FFI.

Family Farm Income (/ha)

13% tax No tax 26% tax
Average 18,632 20,147 17,109
St. Dev. 14,072 15,512 12,574
CV 76 77 73
Minimum 16,805 16,805 16,805
Maximum 69,462 78,492 63,815
Probability of value <0 8.91% 8.91% 8.91%

The results indicate that the expected values of the economic sustainability indicators are
significantly affected by the tax regime. However, because the effect of taxes applies only to profitable
farms, the probability of a value less than zero is the same in each scenario. These results highlight the
role of the policy makers in the adoption and expansion of alternative crops in Greece and emphasize
the negative economic effects that a policy regime can cause on agricultural enterprises.

3.3. Effect of Farmers Risk Attitude

In the previous analysis, we explore how the risk and uncertainty affect the economic sustainability
of the organic aloe farms. In this section, we introduce the risk attitude of the farmer as a key indicator
for the establishment of an organic Aloe vera crop. The main idea is that, according to their level of
risk aversion, a farmer is willing to adopt or to reject the prospect of the establishment of an organic
Aloe vera crop. The quantification of farmers willingness to establish an organic Aloe vera crop is
accomplished via the estimation of the certainty equivalents (CEs) at different levels of risk aversion,
using the SERF analysis in Simetar (College Station, TX, USA) 2011 [30,31].
The level of risk aversion is measured by the Absolute Risk Aversion Coefficients (ARAC).
Generally, there are no specific ranges for ARACs. For example, according to Thomas [36], that range
should be from 0.0005 to +0.005. However, it appears more appropriate to normalize the range of
ARAC against wealth. The relation between absolute and relative risk aversion is: ra (w) = rr (w)/w,
where rr (w) is the relative risk aversion coefficient with respect to wealth (w) [30]. Anderson and
Dillon [37] proposed a general classification of degrees of risk aversion, based on rr (w), in the range of
0.5 (hardly risk averse) to approximately 4 (extremely risk averse).
In accordance with Fathelrahman et al. [38], the average wealth is approached by the expected
farm family income, which is estimated to 18,631 . Assuming a 10% return (R) on the value of the
assets with a normal debt to asset (DA) ratio of 20%, the ARAC at the extremely risk averse level (4)
can be calculated as: 4 / [(1DA) (w/R)]. Therefore, the upper limit of ARACs is equal to 0.00024.
Additionally, we estimate CEs using both NP and FFI, remembering the discussion on the
economic sustainability indicators. Indeed, these two economic indicators fit to different patterns of
economic agents. The CEs relative to the farmers risk aversion are presented in Figure 8. The CEs are
(as expected) greater for the FFI, indicating that given the facts of this crop, it appears more suitable
for a more traditional type of farming activity. Moreover, this cultivation is not suitable for farmers
with high risk aversion.
Sustainability 2016, 8, 338 11 of 13
Sustainability 2016, 8, 338 11 of 13

25,000
20,000

Certainty Equivalent
15,000
10,000
5,000
0
-5,000 0 0.00005 0.0001 0.00015 0.0002 0.00025

-10,000
-15,000
ARAC

Net Profit Family Farm Income

Figure 8. Certainty equivalents for the establishment of an organic Aloe vera farm.
Figure 8. Certainty equivalents for the establishment of an organic Aloe vera farm.
4. Conclusions
4. Conclusions
This study explores the economic sustainability of organic Aloe vera farming, considering the
Thisuncertainty
risk and study explores the economic
embedded sustainability
in it. Aloe vera farming of organic Aloepromising
is a very vera farming, considering
activity the risk
and is gaining
and uncertainty embedded in it. Aloe vera farming is a very promising
momentum globally because of its increasing market demand. In Greece, the commercial cultivation activity and is gaining
momentum
of Aloe vera hasglobally
been because
growingofrapidly;
its increasing
however, market
theredemand. In Greece,
are, as yet, no directthemarket
commercialchains cultivation
with the
of Aloe vera has been growing rapidly; however, there are, as yet, no direct
pharmaceutical and cosmetic industries that need Aloe vera gel for their production lines. Therefore, market chains with the
pharmaceutical and cosmetic industries that need Aloe vera gel for their
a main source of risk stems from the existing inconsistencies throughout the marketing chain that production lines. Therefore,
a main
fail source
to create theofsupply
risk stems fromthe
to meet thedemand
existing forinconsistencies
aloe leaves by throughout the marketing
the industries. The second chain that fail
important
to create
source the stems
of risk supplyfromto meet the demandlevel
the achievement for aloe leaves
of yields by thethe
because industries. The second
extreme weather important
conditions and
insufficient pests and disease control can greatly affect production. Finally, the volatile farmers and
source of risk stems from the achievement level of yields because the extreme weather conditions tax
insufficient pests and disease control
regime adds one more source of risk to the activity. can greatly affect production. Finally, the volatile farmers tax
regime adds one more source of risk to the activity.
The analysis reveals that organic aloe farming is a promising alternative to traditional crops in
Greece,The analysis reveals
particularly that farms
for family organic in aloe
ruralfarming
areas, who is a have
promising alternative
risk-neutral to traditional
attitudes and who manage crops
in Greece,
marginal particularly
farmlands withforpoorfamily
qualityfarms in rural
irrigated areas,
water. In who havethe
contrast, risk-neutral attitudes and
more entrepreneurial type whoof
manage marginal farmlands with poor quality irrigated water. In contrast, the
farmer is less willing to establish an organic Aloe vera crop unless the size of his crop allows economies more entrepreneurial
type
of of farmer is less willing to establish an organic Aloe vera crop unless the size of his crop allows
scale.
economies of scale.
To conclude, Aloe vera crops can assist to the reorganization and modernization of the agricultural
sector in Greece and Aloe
To conclude, vera crops
can create can assist
new economic to the reorganization
opportunities for development and within
modernization
rural areas.ofAsthe a
agricultural sector in Greece and can create new economic opportunities
prerequisite, a well-established marketing channel for the distribution of leaves to processing units at afor development within
rural
fair areas. As
producer a prerequisite,
price must be formed. a well-established marketing
There are encouraging channel
signs from thefor market,
the distribution of leaves
as the global market to
processing units at a fair producer price must be formed. There are encouraging
of Aloe vera extracts is expected to witness robust growth during the next decade. This is the outcome signs from the
market,
of as the
the rising globalofmarket
number of Aloe veraconsumers
health-conscious extracts is coupled
expectedwith to witness robust
increasing growth awareness
consumer during the
next decade. This is the outcome of
regarding the benefits of Aloe vera extracts [39]. the rising number of health-conscious consumers coupled with
increasing consumer awareness regarding the benefits of Aloe vera
In addition, farmers must exploit more efficient marketing channelseither in Greece or extracts [39].
In addition,
abroadand farmers
not solely relymust
on theexploit more efficient
distribution of theirmarketing
yield to the channelseither
processing industry. in GreeceIn thisor
abroadand not solely rely on the distribution of their yield to the
respect, the further expansion of the organic Aloe vera farms can contribute to the economic and processing industry. In this
respect, the further
environmental expansion
sustainability of theareas
in rural organic Aloe vera farms
and encourage can contribute to the economic and
rural development.
environmental sustainability in rural areas and encourage rural development.
Acknowledgments: This study is a part of post-doctoral research, funded under the Project Research &
Technology Development
Acknowledgments: This Innovation
study is a Projects-AgroETAK,
part of post-doctoral MIS 453350,
research, in the under
funded framework of the Operational
the Project Research &
Program Human
Technology ResourcesInnovation
Development Development. This study is alsoMIS
Projects-AgroETAK, co-funded
453350,byin the
theEuropean
framework Social Fund
of the through
Operational
the National Strategic Reference Framework (Research Funding Program 20072013) coordinated by the Hellenic
Program Human
Agricultural Resources
Organization Development.
-DEMETER This study
(Agricultural is alsoand
Economics co-funded by the European
Policy Research Social Fund
Institute/Scientific through
supervisor:
the National Strategic Reference Framework (Research Funding Program 20072013) coordinated
Irene Tzouramani). Moreover, the authors want to express their gratitude to the Panhellenic Association of Organic by the
Hellenic
Aloe VeraAgricultural
Producers and Organization
its members -DEMETER (Agricultural
for their valuable Economics
assistance and Policy
throughout Research Institute/Scientific
this research.
supervisor:
Author Irene Tzouramani).
Contributions: All authorsMoreover,
contributedtheequally
authors want
to this to express their gratitude to the Panhellenic
work.
Association of Organic Aloe Vera Producers and its members for their valuable assistance throughout this
research. of Interest: The authors declare no conflict of interest.
Conflicts

Author Contributions: All authors contributed equally to this work.

Conflicts of Interest: The authors declare no conflict of interest.

Sustainability 2016, 8, 338 12 of 13

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