AGRICULTURAL

ECONOMICS

Agricultural Economics 41 (2010) 151–163

On the efficiency of composting organic wastes

Iddo Kana,∗ , Ofira Ayalonb , Roy Federmanb
a Department of Agricultural Economics and Management, The Robert H. Smith Faculty of Agriculture, Food and Environment,
The Hebrew University of Jerusalem, P.O.Box 12, Rehovot 76100, Israel
b Natural Resource and Environmental Research Center, University of Haifa, Mt. Carmel, Haifa 31905, Israel

Received 2 April 2009; received in revised form 17 September 2009; accepted 28 October 2009

Abstract
We develop a mathematical programming model for the analysis of a nationwide waste-management system based on composting of organic
wastes. The model integrates a wide range of engineering, environmental, and economic factors, including estimated production functions based
on agronomic experimental data, as well as demand functions for vegetative agricultural products. The model is applied to the case of Israel,
comprising 14 groups of municipalities as the source of organic municipal solid waste and wastewater-treatment sludge, 8 composting plants, and
13 agricultural regions; the latter constitute the source of livestock manure and are the consumers of compost to be potentially applied to 42 crops.
From a social point of view, 90% of the compost’s potential production was found to be warranted. This efficient solution, however, does not emerge
under the base-year-observed situation, largely because of the absence of source separation of organic municipal solid waste and the farmers’ lack
of awareness of compost’s advantages as a substitute for conventional fertilizers and as a soil-amending product. Consequently, most of the organic
wastes are disposed of by landfilling, resulting in a loss of $102 million per year in terms of net social benefits. While the consumers of agricultural
products are expected to benefit from a shift from the base-year situation to the efficient solution, most of their gain is expected to come at the
expense of the farming sector. Nevertheless, the appearance of the efficient solution does not depend on administrative compensation payments,
but on the removal of bottlenecks. Potential government intervention strategies to promote the change are analyzed.

JEL classification: Q28, Q53

Keywords: Agriculture; Economics; Waste management; Recycling; Positive mathematical programming

1. Introduction landfills in order to reduce methane emissions, a potent green-

Governmental intervention in waste-management systems is
rationalized by both the involvement of externalities (Ayalon
et al., 2000, 2001) and the public-good nature of this service.
Frequently, the intervention takes the form of setting goals based
on technological and environmental considerations. The Euro-
pean national waste strategy, set up according to Article 5(2) of
EU Council Directive 99/31/EC of 26 April 1999 (EU, 2007), is
an example of this approach. This Directive sets specific targets
for the reduction of biodegradable municipal waste going to
∗ Corresponding author. Tel.: +972-8-9489233; fax: +972-8-9466267.
E-mail address: kan@agri.huji.ac.il (I. Kan)
Data Appendix Available Online
A data appendix to replicate main results is available in the online version of
this article. Please note: Wiley-Blackwell Inc. is not responsible for the content
or functionality of any supporting information supplied by the authors. Any
queries (other than missing material) should be directed to the corresponding
author for the article.
house gas, from landfills, and stresses the importance of biolog-
ical treatment of the organic municipal solid waste (OMSW).
However, the extent to which composting of OMSW is justifi-
able should be considered in view of economic considerations,
while taking into account a wide range of environmental, tech-
nological, and economic factors. For instance, the demand for
OMSW compost is affected by farmers’ perceptions of the con-
tribution of compost to agricultural production, which depends
on the content of organic matter in the soils, climatic conditions,
compost quality, and the presence of compost produced from
alternative organic materials, such as livestock manure (LM)
and wastewater-treatment sludge (WTS). The supply depends
on the compost’s production and transportation costs, as well as
on the savings realized by avoiding landfilling of OMSW. All of
these economic factors are highly sensitive to government in-
tervention, not only in the waste-management system, but also
through provision of agricultural research and guidance.
The primary objective of this study is to develop an economic
model to evaluate the extent to which it is worthwhile, from


c 2010 International Association of Agricultural Economists DOI: 10.1111/j.1574-0862.2009.00432.x
152 I. Kan et al. / Agricultural Economics 41 (2010) 151–163
a social point of view, to use composting as a solution for
organic waste disposal, and to apply it to a case study—the
case of Israel. The secondary objective is to utilize the model
to assess the potential impact of some policy instruments by
which government intervention can advance realization of the
socially optimal solution.
There is a vast amount of scientific information on vari-
ous aspects of organic waste treatment and its agricultural
uses; for example, logistic processes (Chakrabarti and Sarkhel,
2003); air pollution (He et al., 2001); compost productivity,
soil fertility, and water-holding capacity (Annabi et al., 2007;
Avnimelech, 1997; Stewart et al., 2000); and socioeconomic
aspects (Hayashi et al., 2004; Janzen et al., 1999). Each of
these studies considers some of the elements associated with the
aforementioned objectives. In this article, we present a compre-
hensive nationwide-scale economic analysis of organic waste
recycling through composting, that (1) encompasses the main
types of competing sources for organic raw materials, (2) ex-
plicitly incorporates the agricultural productivity of compost,
(3) considers costs associated with alternative disposal meth-
ods, (4) accounts for monetarily evaluated external impacts
stemming from the relevant waste-disposal strategies, and (5)
takes into account the spatial nature of the problem, as well
as (6) variations in prices of vegetative agricultural products
under partial equilibrium conditions. The analytical framework
is based on the development of a spatial positive mathematical
programming (PMP) (Howitt, 1995) partial equilibrium model,
and its application to the case of Israel.
There are two reasons why composting should be considered
a promising waste-management strategy in Israel. The first is
associated with the supply of organic materials. Landfill space
is becoming scarce (Hoshva Consultants, 2005), and therefore
Israel’s Waste Master Plan sets specific targets for reducing the
fraction of landfilled waste to 50% by the year 2025 (IMEP,
2008b). Composting constitutes an alternative disposal solu-
tion for OMSW, which comprises the highest fraction (40%)
of the total MSW produced in Israel (IMEP, 2008a). Moreover,
diverting organic waste from landfills reduces the emission of
greenhouse gases, groundwater pollution, and other environ-
mental burdens (Ayalon et al., 2003). The second reason is
related to the demand for compost: in this semiarid region,
compost productivity is high due to low soil organic content.
Nevertheless, to date, only 30% of compost’s potential pro-
duction (of 1.725 million tons per year from OMSW, LM, and
WTS) is realized. This apparently low rate is due to various
constraints associated with processing of the raw materials and
use of compost by the agricultural sector. The production of
compost from WTS is expected to remain negligible until the
regulations prohibiting discharge into the Mediterranean Sea
under the Barcelona Declaration in 1995 (EU, 2008) come into
effect in 2012. The low production of OMSW compost is at-
tributed mainly to low agricultural demand, which is associated
with the product’s low quality resulting from the absence of
source separation of MSW—if waste is separated at the source,
the risk of polluting agricultural output with heavy metals and
toxins is significantly reduced (Eunomia, 2002). However,
given the investments associated with source separation, it is
expected that municipalities will adopt this waste-collection
management provided that agreements ensure a steady con-
sumption of the separated materials in the long run. Since such
agreements frequently require the involvement of a few neigh-
boring agricultural enterprises and local authorities, the cen-
tral government may initiate and stimulate the formation of
such regional cooperations by creating appropriate economic
incentives (e.g., by providing guarantees with respect to prices
and consumption). Even so, the demand for compost by the
agricultural sector depends on the farmers’ recognition of the
benefits of compost application. Afik Engineering and Lavee
(2000) found that farmers’ perception of compost productivity
is highly dependent on both the quality of the compost and rec-
ommendations by the authorities (IMARD, 2008). Therefore,
the government can play a major role in increasing the demand
for compost by both setting and enforcing clear standards for
high-quality compost, and by disseminating scientific informa-
tion on compost’s advantages via the government’s agricultural
guidance services. For example, the demand for compost might
increase if farmers were informed that applying compost to cal-
careous soils—such as those in Israel—significantly reduces
the risk of heavy-metal pollution (Avnimelech, 1986).
Our analysis integrates, within an economic model, a wide
range of science-based information in order to calculate the
efficient1 level of compost production in the case of Israel, and
the consequent social benefits in a situation in which all of the
abovementioned compost production and consumption barriers
are removed. In addition, we examine whether government in-
tervention in the form of compensation payments to some of
the involved agents is required to realize the efficient solution.
2. The model
The model is developed to take into account the spatial distri-
bution of the sources of organic waste, the composting plants,
and the agricultural regions in which compost may be applied.
Fourteen groups of the urban and rural settlements throughout
Israel are the sources of OMSW and WTS. Each settlement
group (SG) is characterized by the quantity of OMSW and
WTS produced there, and a geographic location represented by
the center of the group’s largest city. We consider 13 agricul-
tural regions of demand for compost based on data reported
by the Israeli Central Bureau of Statistics (ICBS, 2004). Each
region is characterized by a point located at its geographic
center,2 and by the different crops grown there, 42 crops alto-
gether. These agricultural regions also constitute sources of LM.
1 Efficiency refers to a situation in which potential improvements according
to the Kaldor–Hicks criterion are unachievable.
2 The distance between a composting plant and the center of an agricultural
region is assumed to represent the average distance from the plant to the various
agricultural plots throughout that region. The same assumption holds with
respect to the largest city in a settlement group.
 I. Kan et al. / Agricultural Economics 41 (2010) 151–163 153

Compost is assumed to be produced at eight plants, some of
which are currently operational, while the rest are located in
official landfills.3 Since the process of collecting OMSW is
based on separation at the source, the model does not incor-
porate sorting plants. Moreover, source separation ensures the
production of high-quality compost with low levels of metal
and salt contents (Hargreaves et al., 2008).
The model maximizes an objective function by allocating
where βiw , βis , and βkl (all in $ per ton ) are, respectively, the
landfilling costs of nonseparated MSW,4 WTS, and LM in the
respective regions in which they are created. While precom-
posting treatment of WTS and LM is assumed similar to the
prelandfilling process, recycling of OMSW is associated with
additional costs due to source separation of MSW

14 
8

the three sources of organic waste to the plants, allocating the CS = μ wij , (2)
i=1 j =1
compost produced there to the agricultural regions, determin-
ing the amount of compost applied to each crop grown in each where μ ($ per ton) is the additional collection cost per separated
region, and allocating the regional agricultural lands among OMSW unit.
the crops. The objective function encompasses the benefits and The annual amount of compost sent from plant j to region k
costs associated with the analyzed system. The benefits com- is denoted cjk (ton per year). The total compost production costs
prise the savings incurred by avoiding waste landfilling—the are given by
cheapest authorized waste-disposal alternative in Israel (EMC,
1996), and the contribution of compost to farming income 
8 
8 
13
through soil amendment and savings in fertilizers, while the C CP = ϕ1 δj + ϕ2 cj k , (3)
costs include the expenses related to agricultural production, j =1 j =1 k=1
compost-production processes, and transportation of compost
and organic wastes. The model accounts, wherever available, where ϕ1 ($ per year) and ϕ2 ($ per ton) are the fixed and
for monetary evaluations of environmental costs and benefits; variable costs, respectively, and δj is a categorical variable,
for example, avoided greenhouse gas emissions and leachates which has a value of 1 if plant j is operational, and 0 otherwise.
from landfills, and externalities associated with hauling and Transportation costs depend on both the shipped quantities and
compost production. Equilibrium in the markets for vegetative the traveled distances
agricultural products is assumed, where variations in output 
14 
8
  14 
8
 
prices in response to production changes are calculated by the CT = wij τ1w + τ2w dij + sij τ1s + τ2s dij
use of estimated inverse-demand functions. Using the PMP cal- i=1 j =1 i=1 j =1
ibration procedure (Howitt, 1995), the model is calibrated so 
13 
8
  8 
13
 
as to reconstruct the observed base-year situation, under which + lkj τ1l + τ2l dj k + cj k τ1c + τ2c dj k ,
farmers apply compost to specific crops according to the doses k=1 j =1 j =1 k=1
reported by Afik Engineering and Lavee (2000), and the supply (4)
of high-quality compost is limited by the observed availability
where τ1w , τ1s , τ1l , and τ1c (all in $ per ton) are the quantity-cost
of raw organic materials (Zadikov, 2005). Then, the optimiza-
coefficients, and τ2w , τ2s , τ2l , and τ2c (all in $ per ton per kilometer)
tion problem is modified and the model searches for a new
are the quantity-distance cost parameters of OMSW, WTS, LM,
optimum. As detailed in Section 5, we consider four modified
and compost, respectively; the parameters dij and dj k (km)
scenarios, relative to the base-year conditions, which combine
represent, respectively, the distance of SG i and agricultural
changes related to both farmers’ consideration of the compost’s
region k from composting plant j.
advantages and the removal of compost-production barriers.
Let gkm be the land (hectare) devoted to crop m in region
In addition, the sensitivity of the results to changes in various
k, and akm (ton per hectare per year) the respective amount of
factors and assumptions is analyzed.
applied compost. The costs associated with compost application
Let wij , sij , and lkj (all in ton per year) be, respectively, the
are
annual amount of OMSW transported from SG i, i = 1 , . . . , 14,
to composting plant j, j = 1 , . . . , 8; the amount of WTS carried 
13 
42
from SG i to plant j; and the quantity of LM shipped from CA = ψ gkm akm , (5)
agricultural region k, k = 1 , . . . , 13, to plant j. Recycling these k=1 m=1
organic residues saves the costs associated with their disposal
where ψ ($ per ton) is the per compost-unit application cost.
by landfilling
All other agricultural production costs not directly related to
compost application are represented by a cost function, which

14 
8 
14 
8 
13 
8
SL = βiw wij + βis sij + βkl lkj , (1) is nonlinear with respect to land allocation. In line with the
i=1 j =1 i=1 j =1 k=1 j =1
4 On a wet-weight basis, OMSW comprises 40% of MSW; thus, assuming
that once separated, both the organic and nonorganic components of the MSW
3 Establishment of facilities in new sites is considered impractical in light of are recycled, implies that composting 1 ton of separated OMSW saves the costs
past failures attributed to the NIMBY effect (Feinerman et al., 2004). of landfilling 2.5 tons of nonseparated MSW.
154 I. Kan et al. / Agricultural Economics 41 (2010) 151–163

PMP approach, the role of this function is to indirectly reflect citrus fruits, celery, pepper, avocado, and potato affect prices in
the comprehensive impact of a wide range of unobserved fac- the destination countries (Kachel, 2004). Given the consider-
tors contemplated by farmers when allocating their constrained able quality differences between locally consumed and exported
land among crops; for example, the spatial variation in soil qual- products, the local and export markets are assumed to act sep-
L E
ity, input constraints, know-how limitations, crop rotations, risk arately. Let pm ($ per ton) and pm ($ per ton) be crop m’s local
aversion, traditional habits, etc. Economic studies that explicitly and export prices, respectively. These prices are assumed to
model the effects of such attributes on cropping patterns fre- vary according to the linear inverse-demand functions
quently rely on large farm-level samples (e.g., El-Nazer and Mc-
Carl, 1986). The PMP method of incorporating land-allocation
L
pm = χ1m
L
+ χ2m
L
rm Ym , and E
pm = χ1m
E
+ χ2m
E
(1 − rm )Ym ,
decisions into programming models is commonly applied when (9)
only a limited and regionally aggregated data set is available. 
Following Henseler et al. (2009), we employ the power cost where Ym = K k=1 gkm ykm is the nationwide total production
function of crop m, rm is the fraction of crop m’s output for local con-
L L E
sumption, which is assumed constant,6 and χ1m , χ2m , χ1m , and

13 
42 E
χ2m are parameters. Production in the two markets depends on
C AP = [ς1km gkm + ς2km (gkm )γ ], (6) market structure. With respect to the local markets, farmers are
k=1 m=1
unorganized and in general act as price takers. Kachel (2004)
where the parameters ς1km and ς2km are calibrated according and Dvir (2008) showed that, despite the existence of farmers’
to the PMP calibration procedure developed by Howitt (1995), exporting corporations, they do not take advantage of market
as described in Appendix I, and γ > 1 is the power parameter. powers. We therefore consider competition conditions in both
Since γ is unknown, we adopt the commonly used quadratic markets, and calculate the equilibrium by accounting for the
function (γ = 2) and analyze the sensitivity of the outcomes to consumers’ total willingness to pay for vegetative products
this assumption. 42 
Compost contributions include both savings on fertilizer ex-  1 L
TWTP = L
χ1m rm Ym + χ2m (rm Ym )2 + χ1m
E
(1 − rm )Ym
penses and yield increase attributed to soil amendment. Total 2
m=1
fertilizer savings are
1 E
+ χ ((1 − rm )Ym )2 . (10)

13 
42 2 2m
S =
F
gkm akm ρkm , (7)
k=1 m=1
Aggregating Eqs. (1) through (7) and (10) yields the objective
where ρkm ($ per ton) is the compost’s value of nutrients that function
replace fertilizers, the calculation of which is described in Ap-
pendix II. Compost’s contribution to production through soil = TWTP + S F + S L − C S − C CP − C T − C A − C AP ,
amendment is represented by quadratic production functions (11)
  2  where ($ per year) represents the net social benefits as-
ykm = ȳm 1 + v1m (akm − ām ) + v2m akm − ām2
, (8)
sociated with the waste-management system under consider-
where ykm (ton per hectare per year) is crop m’s production ation. Optimization is achieved by setting the variables akm ,
in region k, ȳm (ton per hectare per year) and ām (ton per gkm , cj k , wij , sij , and lkj so as to maximize , subject to
hectare per year) are the base-year observed yield and compost the following
 constraints: aggregated land use in every re-
application, respectively,5 and v1m and v2m are the production- gion, 42 m=1 gkm , should not exceed the total agricultural area
function parameters, estimated by a procedure that is described there, denoted Gk (ha); field-level compost application to ev-
in the next section. ery crop m, akm , is constrained by a specific maximum  value,
Our analysis is based on a partial equilibrium approach, Am (ton per hactare per year); regional compost use, 42 m=1
where agricultural production depends on the prices emerg- gkm akm , should not exceed the total amount  transported
ing under equilibrium in the local and world markets. Most of there from the eight composting plants, 8j =1 cj k ; compost
13
the local consumption of field crop products in Israel, such as supplied from every plant j, k=1 cj k , cannot exceed the
wheat, barley, chickpea, and cotton, is imported and therefore, amount
 producible from
14 the organic
13wastes arriving wat itss gate,
farmers producing these products for local consumption face α w 14 w
i=1 ij + α s
s
i=1 ij + α l
k=1 lkj , where α , α , and
world-market prices. On the other hand, due to high import α l are, respectively, the raw material-to-compost production
tariffs and transportation costs, there is almost no import of ratios of OMSW, WTS, and LM; the  quantities of OMSW,
vegetables and fruits, whose prices are determined in equilib- WTS, and LM sent to the factories, 8j =1 wij , 8j =1 sij , and
rium in the local markets (Hadas, 2001). In addition, exports of
6 There is no information on changes in the allocation between the two markets
5 Values are available only in terms of nationwide averages. in response to variations in Ym .
 I. Kan et al. / Agricultural Economics 41 (2010) 151–163 155

8
To neutralize variations in climate and soil quality, only field
j =1 lkj ,
are limited by their availability at their sources, Wi ,
Si , and Lk (all in ton per year), respectively; finally, every plant experiments7 conducted in areas with climate conditions and
j has a specific production capacity, Zj (ton per year), such that soil properties similar to those in Israel were considered. More-
 14 13 over, the production function should reflect the contribution
α w 14 i=1 wij + α
s
i=1 sij + α
l
k=1 lkj ≤ Zj . Altogether,
there are 629 constraints, plus nonnegativity bounds with re- of compost through soil amendment alone, separated from its
spect to all 1,524 variables of the programming problem. fertilization impact, which can be achieved by conventional fer-
tilizers. Therefore, priority was given to experiments that used
MSW as the compost’s raw material due to its low nutrition
3. Compost production functions content. Sources that reported on the yield responses to com-
post application subject to these limitations were found for corn
A key element in our analysis is the response of yields to (Avnimelech et al., 1990; Mor et al., 1990); wheat and clover
compost application due to improved soil properties. While the (Agassi et al., 2004); potato (Avnimelech et al., 1996; Fine et al.,
agronomic literature reports vast evidence of compost’s agro- 2003); broccoli (Jackson et al., 2004; Perez-Murcia et al., 2006);
nomic advantages, this information has never been concentrated strawberry (Arancon et al., 2004); olive, orange, and grapevine
and arranged into a format useful for economic analyses. Our (Aguilar et al., 1997); and sunflower and watermelon (Izencot
objective in this section is to assign a production function to and Zilberman, 2004). Allocation into groups was based on
each of the 42 crops under consideration that relies on the widest botanical families when possible, while all other crops were
up-to-date experimental scientific knowledge on compost pro- classified into “trees” and “nontrees.” Table 1 summarizes the
ductivity through soil amendment, and that, at the same time, estimated parameters for the various groups of crops.
can be calibrated to reflect yields obtained in large-scale farm-
ing operations. Moreover, due to the scarcity of experimentally
4. Data
based information, a method is needed to enable adjustment of
the production functions for a large number of crops based on
Table 2 reports the main cost parameters and compost-
experimental results associated with only a few crops. To this
production ratios, the sources of which are detailed in this
end, we develop the following procedure.
section.8 Our base year for the analysis is 2003, and all mone-
Suppose that there are field-experimental findings for a given
tary values are in July 2004 US dollars.
crop, m, such that a quadratic production function can be esti-
Nationwide base-year per-hectare average agricultural pro-
mated
duction, ȳm , as well as ym —the maximum observed yield
reduction below the average yield, ȳm (see Appendix I)—were
ym (am ) = θ0m + θ1m am + θ2m am
2
, (12) calculated using nationwide yields obtained from the ICBS
(2004) for the period 1992–2002. Base-year cropping areas,
where θ0m , θ1m , and θ2m are crop m’s specific parameters. ḡkm , and average prices, pm , were also from ICBS (2004).
Given ȳm and ām , one can calibrate θ0m based on the identity Compost application in the base year, ām , and maximum appli-
ȳm = ym (ām ) = θ0m + θ1m ām + θ2m ām
2
. By substituting this into cation, Am , were based on findings of a survey conducted by
Eq. (12) and rearranging, we get the ratio of yield change re- Afik Engineering and Lavee (2000), who studied actual com-
sulting from applying any quantity of compost, am , relative to post practices in Israel and farmers’ perspectives on compost
the base-year amount, ām application. They also provided monetary values of the fertil-
ization elements (nitrogen and phosphorus) available to each
ym (am ) − ȳm θ1m θ2m  2  crop m in 1 ton of compost produced from clean OMSW, WTS,
= (am − ām ) + am − ām
2
. (13) and LM, denoted ϑmw , ϑms , and ϑml (all in $ per ton), respectively
ȳm ȳm ȳm
(see Appendix II).
Data obtained from a survey of waste-transport contractors
Define θȳ1mm = v1m and θȳ2mm = v2m , multiply by ȳm and re-
were used to estimate parameters of transportation costs of
arrange to get the quadratic production function presented in
MSW (τ1w and τ2w ). Transportation costs of compost, WTS, and
Eq. (8).
LM (τ1s , τ1l , τ1c , τ2s , τ2l , and τ2c ) were adopted from Pluda (2002).
Although this estimation procedure can be applied only to
In all cases, we added the external cost of $0.008 per ton per
crops for which experimental data are available, it constitutes
kilometer (EMC, 1996) to the distance-dependent parameters—
a convenient framework for making inferences on compost-
these costs account for damages associated with noise, road
productivity responses of crops that are lacking such infor-
depreciation, traffic accidents, and air pollution. The unit cost of
mation. The deduction is based on the assumption that crops
landfilling raw materials, βiw , βkl , and βis ,was calculated for each
belonging to a specific botanical family exhibit the same ratio
source as the sum of the cost of transporting to, and dumping
parameters v1m and v2m . We therefore clustered the 42 crops
into 12 groups, such that there was at least one crop in each 7 Pot experiments were excluded in order to reflect large-scale agricultural
group for which field experiments had been reported in the performance.
agronomic literature. 8 The model and the entire data set are available from the authors upon request.
156 I. Kan et al. / Agricultural Economics 41 (2010) 151–163

Table 1
Estimated production-function parameters for crop groups

Botanical Representative Location of Crops in Obs. v 1 ×100% v 2 ×100%

family crops experiment the group

Vitaceae Grape Spain Grape 15 19.11∗∗ −2.30∗∗

Compositae Sunflower Israel Sunflower, lettuce, 3 8.33na −0.86na
artichoke
Citrus Orange Spain Orange, lemon, 3 14.83na −2.52na
grapefruit, other citrus
Cruciferae Broccoli California & Cauliflower, cabbage, 5 9.78∗∗∗ −0.12∗∗∗
Mexico radish
Solanaceae Potato Israel Potato, pepper, tomato, 4 3.17∗∗∗ na
eggplant
Oleaceae Olive Spain Olive 9 15.23∗∗∗ na
Papilionaceae Clover Israel Alfalfa, ground nut, bean, 3 6.17na −0.19na
chickpea, pea
Gramineae Wheat Israel Wheat, barley 3 11.47na −0.42na
Gramineae Corn Israel Corn 5 3.03∗∗ −0.18∗
Cucurbitaceae Watermelon Israel Watermelon, melon, 2 2.44na na
marrow, cucumber
Trees Orange – Plum, avocado, almond, 3 14.83na −2.52na
apple, pear, peach,
banana
Non-trees Sunflower, broccoli, – Celery, carrot, cotton, 19 5.60∗∗ −0.04∗∗∗
potato, clover, wheat, onion, garlic,
corn, watermelon strawberry
∗ ,∗∗ ,∗∗∗ significant at 10%, 5%, and 1%, respectively; na = not available.

Table 2
Costs and compost-production-ratio parameters

Symbol Description Units Value

μ Added cost due to source separation of OMSW [$ per ton] 45.05

τ1w Fixed cost of transporting OMSW [$ per ton] 0.79
τ2w Distance variable cost of transporting OMSW [$ per ton per kilometer] 0.06
τ1l Fixed cost of transporting LM [$ per ton] 1.57
τ2l Distance variable cost of transporting LM [$ per ton per kilometer] 0.07
τ1s Fixed cost of transporting WTS [$ per ton] 7.86
τ2s Distance variable cost of transporting WTS [$ per ton per kilometer] 0.32
τ1c Fixed cost of transporting compost [$ per ton] 1.57
τ2c Distance variable cost of transporting compost [$ per ton per kilometer] 0.07
ϕ1 Fixed cost at plant for production of compost [$ per year] 79,420
ϕ2 Variable cost of producing compost from organic materials [$ per ton] 5.20
ψ Compost application costs in the field [$ per ton] 4.44
αw Production ratio by weight—compost/OMSW – 0.52a
αl Production ratio by weight—compost/LM – 0.52a
αs Production ratio by weight—compost/WTS – 1.80b
a Pluda (2002).
b Zadikov (2005).

at the specific landfill associated with the source in the base
year. Costs at the landfills include gate price and external costs
of $1.77 per ton, as estimated by EMC (1996) with respect
to damages associated with pollutants emitted to the air and
leachates. The additional cost associated with source separation
of MSW, μ,was calculated based on Broitman (2008) and Kahat
et al. (1999).
Calculations of ϕ1 and ϕ2 —the compost-production cost
parameters—were from Pluda (2002), based on the windrow-
composting method, which is known to be cheaper than the
alternative techniques of anaerobic digestion and in-vessel com-
posting (Karagiannidis and Perkoulidis, 2009; Komilis and
Ham, 2004). The variable cost, ϕ2 , includes external cost associ-
ated with N2 O emissions, in terms of effective greenhouse gas,
which is equal to the emission of 11 g per ton (Avnimelech et al.,
2005) multiplied by the damage of $11.2/kg N2 O (Eshet et al.,
2005); this amounts to $0.12 per ton of compost. Compost ap-
plication costs, ψ, and all other non-compost-related costs, ωm ,
were taken from sample cost calculations reported by IMARD
(2008). The SGs’ OMSW productions, Wi , were calculated
 I. Kan et al. / Agricultural Economics 41 (2010) 151–163 157

according to ICBS (2004) data on MSW production by cities. denoted Scenario 1, represents the case of no source separa-
LM production, Lk , was estimated by use of the annual pro- tion of MSW, limited production capacities of the composting
duction of milk, eggs, chickens, turkeys, heads of sheep for plants, and farmers’ compost applications based on the ob-
milk, and heads of calves for meat (ICBS, 2004); all of these served levels (Afik Engineering and Lavee, 2000); moreover,
production parameters were converted to amounts of manure us- there are no savings on conventional fertilizers. In Scenario 2,
ing conversion coefficients (Afik Engineering and Lavee, 2000; we calculate the efficient levels of compost production, as-
Pluda, 2002). Amounts of WTS, Si , were from Zadikov (2005). suming implementation of MSW source separation wherever
Base-year compost production from the three sources was cal- warranted, removal of production-capacity constraints in the
culated based on information from Afik Engineering and Lavee composting plants, and farmers being fully informed about
(2000) and Zadikov (2005). compost’s agronomic values and hence applying compost based
The coefficients of the linear assumed inverse-demand func- on profit-maximization behavior under competitive conditions.
tion were calculated using the demand elasticity with respect to The purpose of the additional three scenarios is to evaluate the
L
the local crop m’s consumption, ηm , and to the exported quan- impact of each of the factors differentiating the base year and
E
tity, ηm , as estimated, respectively, by Hadas (2001) and Kachel efficient scenarios. In Scenario 3, we consider MSW source
L E
(2004) for the 42 crops. Let Ȳm , p̄m , and p̄m be the observed separation and the removal of production barriers, but keep the
base-year crop m’s nationwide output, the output price in the base-year situation with respect to farmers’ perceptions of com-
local market, and the price of exported production, respectively. post. Farmers’ awareness of the fertilization value of compost
Hence, only is added in Scenario 4, while in Scenario 5, we add only
L E
p̄m p̄m their recognition of compost’s advantages as a soil-amending
L
χ2m = , χ E
= ,
L
rm Ȳm ηm 2m
(1 − rm )Ȳm ηmE product. In addition, we investigate the impact of an event in
which farmers get organized and act as a cartel in the vegetative-
L
χ1m = p̄m
L
− χ2m
L
rm Ȳm , products markets, denoted as the “cartel” scenario. This case is
similar to Scenario 2, except that the total willingness to pay
and function (Eq. 10) is replaced by the aggregated farming revenue
function
E
χ1m = p̄m
E
− χ2m
E
(1 − rm )Ȳm . 
42
 L
R= χ1m rm Ym + χ2m
L
(rm Ym )2 + χ1m
E
(1 − rm )Ym
The reasonableness of the model’s outputs can be assessed by m=1

comparing the computed compost prices to the observed ones. + χ2m
E
((1 − rm )Ym )2 , (15)
Under competitive conditions, if farmers do not undervalue the
compost’s advantages, the price paid by compost consumers in the objective function (Eq. 11).
in each agricultural region can be calculated according to the Fig. 1 shows the efficient (Scenario 2) amount of every or-
compost’s marginal contribution to the region’s net returns from ganic material to be shipped from every source to the com-
farming. In view of Eqs. (4), (5), (7), (8), and (9), the price of posting plants, and of the quantities of produced compost to
the compost sold to farmers in region k, at the gate of plant j is be transported from the plants to every agricultural region. The
figure exhibits the spatial implications of the problem. Sources
pjc k = min(gkm (pm ȳm (v1m + 2v2m akm ) + ρkm )) and destinations are ordered from north to south, with diagonal
m
  distances being the shortest. As expected, plants receive organic
− ψ − τ1c + τ2c dj k , m ∈ mk , (14) materials from sources nearby, and allocate the compost to the
agricultural regions in their surroundings.
where mk denotes the set of crops that get positive amounts Tables 3 and 4 present, respectively, compost-production
of compost in region k, and pm = χ1m L
rm + χ2m rm Ym +
L 2
and objective-function components under the various scenarios.
χ1m (1 − rm ) + χ2m (1 − rm ) Ym is crop m’s weighted average
E E 2
Table 5 reports the changes in the net benefits obtained under
output price. The gate prices computed under the base-year scenarios 2 through 5 and the cartel case, in comparison to Sce-
conditions vary from $−14 to $58 per ton, with a weighted nario 1, and the allocation of these changes in benefit among
average of $20 per ton; this average price lies within the range two activities and three sectors. The allocation to two activities
of observed gate prices for compost, which vary between $45 is based on the objective-function components associated with
and $15 per ton for high- and low-quality compost types, re- activities up to the composting plant’s gate, denoted “waste
spectively (Zadikov, 2005). management,” and activities from the plant’s gate onward, de-
noted “agriculture.” The allocation among sectors—waste man-
5. Efficiency and governmental policies agers (municipalities, LM suppliers, and compost producers),9
9 Due to the linear formulation of the waste-management costs, computation
We analyze five scenarios with respect to the organic materi- of benefits allocation among the waste-management agents requires additional
als recycling system through compost production and farmers’ assumptions. Given their mediation position, composting plants may reap most
perceptions of compost productivity. The base-year situation, of the benefits of this sector.
158 I. Kan et al. / Agricultural Economics 41 (2010) 151–163

(a) (b)

200,000 350,000
180,000

Livestock Manure (ton/year)

300,000
160,000
OMSW (ton/year)

140,000 250,000
120,000
200,000
100,000
80,000 150,000
60,000 100,000
40,000 Dudaim
Dudaim 50,000
20,000 Tovlan
Tovlan
0 Sdot Micha 0 Sdot Micha
Kalansua Kalansua
Kiryat-Shemona

Galil
Zefat

Golan
Hasharon
Carmiel

Hasharon

Western Galil
Tiberius

Yizre'el Valley

t
t
Nazareth

Plan
Amnir Afula

Lower Galil
Plan
Amnir Afula
Haifa

Haifa
Hadera

Jordan Valley
Netanya

Comopst 2000 Comopst 2000

Hasharon
Tel-Aviv

Center
Rehovot

Ashkelon
Shazarim Shazarim
Jerusalem

Yehuda
Ashdod

Negev Arava
Ashkelon
Be'er-Sheva

Arad
Settle Agric
ments ultur
g roup al reg
ion

(c) (d)

70,000 350,000
60,000 300,000
Compost (ton/year)
Sludge (ton/year)

50,000 250,000
40,000 200,000
30,000 150,000
20,000 100,000
Dudaim
10,000 Dudaim 50,000 Tovlan
Tovlan
0 Sdot Micha 0 Sdot Micha
Kalansua Kalansua
Kiryat-Shemona

Galil
Zefat

Golan

Hasharon
Carmiel

Hasharon
Western Galil
Tiberius

Yizre'el Valley

t
t
Nazareth

Plan
Plan

Amnir Afula
Lower Galil

Amnir Afula
Haifa

Haifa
Hadera

Jordan Valley
Netanya

Comopst 2000 Comopst 2000

Hasharon
Tel-Aviv

Center
Rehovot

Ashkelon

Shazarim Shazarim
Jerusalem

Yehuda
Ashdod

Negev Arava
Ashkelon
Be'er-Sheva

Arad

Settle Agric
m ents g ultur
roup al reg
ion

Fig. 1. Allocation of (a) OMSW, (b) LM, and (c) WTS to composting plants, and (d) compost to agricultural regions, under the efficient solution (Scenario 2).

Table 3
Compost production

Potential Production rate of the potential (%)

(103 ton per year) Scenario 1 Scenario 2 Scenario 3 Scenario 4 Scenario 5 Cartel
Scenario Base year Efficiency Removal of Removal of Removal of Removal of
description composting composting composting composting
barriers barriers & barriers & barriers &
recognizing recognizing recognizing
fertilization soil amendment fertilization
value only only value & soil
amendment

OMSW 771 26 78 61 61 75 65
LM 755 40 100 100 100 100 100
WTS 200 8 100 15 92 100 100
Total 1,725 30 90 73 82 89 84
 I. Kan et al. / Agricultural Economics 41 (2010) 151–163 159

Table 4
Benefits and costs (106 $ per year)

Scenario 1 Scenario 2 Scenario 3 Scenario 4 Scenario 5 Cartel

Benefits
MSW landfill savings 19.9 69.3 59.1 59.1 68.0 61.3
LM landfill savings 9.5 25.9 25.9 25.9 25.9 25.9
WTS landfill savings 0.2 3.7 0.7 3.5 3.7 3.7
Fertilization savings 0.0 7.6 0.0 6.3 0.0 6.7
Total willingness to paya 2,156 2,315 2,264 2,272 2,315 1,835
Total benefits 2,185 2,421 2,349 2,367 2,412 1,932
Costs
MSW collection cost increase 17.2 51.4 40.5 40.5 49.9 42.8
OMSW transportation costs 1.2 2.8 2.2 2.2 2.7 2.5
LM transportation costs 1.5 4.3 4.3 4.3 4.3 4.3
WTS transportation costs 0.2 1.8 0.2 1.7 1.8 1.8
Compost production costs 3.2 8.6 7.1 7.9 8.5 8.1
Compost transportation costs 1.8 5.2 3.1 3.6 5.1 4.9
Compost application costs 2.3 6.9 5.6 6.3 6.8 6.5
Agricultural production costs 163 243 266 266 244 −43
Total costs 190 324 329 333 323 28
Net benefits 1,995 2,097 2,020 2,034 2,089 1,904
a The willingness-to-pay value is calculated based on the assumed agricultural products’ linear inverse-demand functions; hence, it should be considered useful only
as a measure for comparison among scenarios rather than as an evaluation of the true willingness-to-pay value.

Table 5
Changes in total net benefits under each scenario relative to the base-year scenario and allocation of the changes among activities and sectors; compost average gate
price; changes in the agricultural-production; and output-price indices

Scenario 2 Scenario 3 Scenario 4 Scenario 5 Cartel

Net-benefits change (106

$ per year) 102 25 39 94 −91
Allocation among activities (106 $ per year)
Waste management 24 25 26 24 25
Agriculture 78 0 13 70 −116
Allocation among sectors (106 $ per year)
Waste-management agents 48 4 8 41 29
Farmers −95 −85 −81 −95 231
Consumers of agricultural products 148 106 111 148 −351
Compost average gate price ($ per ton) 22 −8 −5 17 10
Changes in Laspeyres indices (%)
Agricultural production 26 22 23 26 −7
Agricultural output price −9 −6 −7 −9 31

farmers, and consumers of vegetative agricultural products—
is calculated by the use of the computed compost gate prices
(Eq. 14) and the prices of agricultural products (Eq. 9).10 Also
presented in Table 5 are the calculated prices of compost at the
composting plants’ gates and the changes in the agricultural-
production and output-price Laspeyres indices.
Compost production under the efficient scenario (Scenario 2)
amounts to 90% of the potential production; that is, triple that of
the base-year situation. Among the three organic-waste sources,
only OMSW’s potential is not fully realized; this is attributed
10 In scenarios 3 and 4, farmers’ ignorance of compost productivity is simu-
lated by solving the optimization problem with the compost production function
parameters v1m and v2m , m = 1 , . . . , 42, set to zero; then, the agricultural pro-
duction and the compost gate prices expected under the resultant allocation
of land and compost among crops is calculated, substituting in the parameter
values reported in Table 1.
to the additional costs associated with OMSW pretreatment
through MSW source separation, which is irrelevant in the
cases of LM and WTS. In effect, source-separation costs in
combination with landfill savings play a major role in the justi-
fication for recycling OMSW: implementing source separation
of MSW is found to be unwarranted in the cities of Kiryat-
Shemona, Zefat, Tiberius, Jerusalem, and Be’er-Sheva (see Fig.
1)—the municipalities with the lowest landfilling costs (not
shown). Obviously, forcing these municipalities to comply with
the aforementioned 50% landfilling targets (IMEP, 2008b) is
unfavorable.
Compared to the base-year situation, net benefits increase
by $102 million per year under the efficient solution. Of
this gain, $24 million is attributed to savings in the waste-
management system, and the other $78 million to agricultural
activities (Table 5). The main beneficiaries are the consumers of
160 I. Kan et al. / Agricultural Economics 41 (2010) 151–163
agricultural products; their rise in surplus resulted from the in-
crease in vegetative agricultural production and the associated
price decrease, which amount, according to the Laspeyres pro-
duction and price indices, to 26% and −9%, respectively. On the
other hand, farmers’ aggregated surplus is diminished by $95
million per year. The reduction in agricultural output prices
entails only a slight change in the computed prices of com-
post at the composting plants’ gates, to an average $22 per ton.
However, due to the increase in compost production, the overall
expenses on compost purchases are enlarged by $24 million per
year and, in addition to waste-management savings, the waste
managers’ gains amount to $48 million.
If the total net-benefit increase is larger than the (unknown)
costs associated with stimulating the emergence of the effi-
cient outcome, then government intervention is justifiable. The
impact of the intervention strategies under consideration—the
removal of composting constraints and guiding farmers to rec-
ognize compost’s agronomic advantages—is further analyzed
by examination of Scenarios 3 through 5.
Relative to the base year, the elimination of composting con-
straints without changing farmers’ attitudes toward compost ap-
plication, simulated in Scenario 3, yields a net-benefit increase
of $25 million per year, which is achieved through composting
100% of the LM, and approximately doubling the composting
rates of OMSW and WTS. While this increase is entirely cred-
ited to savings in the waste-management activity, the earnings of
the waste-management sector rise by only $4 million per year;
this is because the calculated gate prices of compost become
negative (on average −$8 per ton), implying that farmers should
be compensated in order to encourage them to use compost, the
advantages of which are unappreciated. In Scenario 4, where in
addition to the elimination of composting constraints farmers
identify the substitution of compost for conventional fertilizers,
the composting rate of WTS is increased to 92%, while that of
OMSW is the same as in Scenario 3. This outcome is expected,
since the fertilization value of OMSW is negligible. In compar-
ison to Scenario 3, net benefits are increased by $14 million per
year. While almost all of this change is attributed to agricultural
production and consumption activities, this amount is allocated
approximately equally among the three sectors. Farmers’ ben-
efits from the fertilization savings increase the compost’s value
of marginal production, which is translated by Eq. (14) to less
negative compost gate prices, and thereby to an enlargement in
waste managers’ income. The fertilization savings also partly
compensate farmers for the reduction in agricultural output
prices, which in turn raises consumers’ surplus. When farmers
consider only the compost’s productivity through soil amend-
ment (Scenario 5), the potential LM- and WTS-composting
rates are completely realized, and that of OMSW attains 75%.
Again, relative to Scenario 3, all of the net-benefits increase ($69
million per year) is associated with agricultural activities; how-
ever, the improvement in the situation for waste managers and
consumers of agricultural products comes partly at the expense
of the farmers, whose income declines by $10 million per year.
Moving from Scenario 5 to the efficient solution (Scenario 2) is
achieved by adding fertilization savings to farmers’ considera-
tions; this increases net benefits by $8 million per year, which
are attributed entirely to agricultural activities, but ultimately
are pocketed almost entirely by the waste-management agents
through the associated rise in composting-plant gate prices.
To summarize our five-scenario analysis, about two-thirds
of the $102 million in benefits increase is achieved through
the compost’s effect as a soil-amending material, whereas com-
post’s fertilization value contributes only 1/12th to this increase.
The realization of these gains, however, depends on the es-
tablishment of a waste-management system that enables pro-
duction of high-quality compost. Nevertheless, as indicated by
Scenario 3, even when the compost’s agricultural advantages
are ignored, such a reorganization of the waste-management
system is warranted, and can itself contribute about a quar-
ter of the potential net-benefit increase. Interestingly, the
waste-management sector is expected to benefit from the
waste-management reform under consideration only when it
is accompanied by a change in farmers’ perception of compost
utilization. Note, however, that our analysis forecasts a consid-
erable deterioration in farmers’ incomes if the efficient solution
is to be realized. This raises the following question: in addition
to the aforementioned steps required for realization of the effi-
cient solution, should the government compensate farmers for
their profit loss? The answer is no. Since farmers act in a com-
petitive environment, they ignore the impact of increased ag-
gregated production on agricultural product prices. Moreover,
the increase in the utilization of compost should be viewed as
only one element of a comprehensive and long-term process of
adoption of improved agricultural technologies, which is partly
supported by public expenditures, and ultimately leads to a
worsening of agriculture’s terms of trade. For example, during
the 1990s, the technological level of agriculture in Israel in-
creased by 52%, while the terms-of-trade index (outputs/inputs
price-index ratio) of vegetative agriculture decreased by 28%
(Kislev and Vaxsin, 2003).
The efficient solution may be sensitive to changes in various
factors and assumptions. The solution appears to be robust to
variations in the assumed value of the agricultural production
cost function’s power parameter γ (Eq. 6), which has no impact
on the composting rates, and entails only negligible changes in
the net benefits and allocations of compost among regions and
crops. On the other hand, simulating an event of cartelization
in the farming sector leads to a decline in OMSW composting
rate to 65%. The most significant factor under the cartelization
scenario is the land allocation—compared to all other scenar-
ios, land is allocated so as to decrease agricultural production,
thereby increasing agricultural output prices and reducing agri-
cultural production costs. These changes dramatically increase
farmers’ surplus, to a large extent at the expense of the con-
sumers of agricultural products. Thus, as the cartelization sce-
nario may be viewed as an extreme extrapolation with respect
to the observed conditions, the change it entails in the com-
posting rate seems rather small. Next, an increase of 100% in
transportation costs, say, due to a rise in oil prices, does not alter
 I. Kan et al. / Agricultural Economics 41 (2010) 151–163
the composting rates—this outcome is explained by the mutual
impact on both the composting and landfilling waste-disposal
alternatives. A rise in oil prices may also increase the price of
commercial fertilizers. Also here the effect is negligible: dou-
bling the prices increases the total composting rate by only 3%.
Increases in landfill gate prices by 10%, 20%, and 80% increase
OMSW composting rates to 93%, 97%, and 100%, respectively.
Finally, the additional cost of $45 per ton for OMSW source
separation, as estimated by Broitman (2008), may be consid-
ered lower if the separated nonorganic materials (e.g., plastics
and paper) are sold to the recycling industry. Adopting Broit-
man’s estimation of an up to 56% reduction in the additional
collection cost, the OMSW composting rate rises to 100%.
6. Concluding remarks
In this study, the efficiency of compost production in Israel
and related governmental intervention strategies were analyzed
based on a mathematical programming model that integrates
a wide range of spatial, agronomical, environmental, and eco-
nomic factors. Our evaluation showed that governmental inter-
vention through both elimination of existing composting con-
straints and directing farmers to recognize compost’s agronomic
advantages could increase social welfare by $102 million per
year. Under this scenario, composting about 90% of the organic
waste produced in Israel is economically warranted. This eval-
uated optimal composting rate was found to be robust to shifts
in the cost of transportation and fertilizer prices, as well as to
cartelization in the market for agricultural products; neverthe-
less, the composting rate is sensitive to changes in costs related
to landfilling and source separation of MSW.
Long-run processes may alter the optimal management of
organic wastes. Population growth is expected to increase the
amounts of OMSW and WTS, and therefore, ceteris paribus,
reduce their composting rates. At the same time, however, pop-
ulation growth may have a counteractive effect through an in-
crease in equilibrium food prices, followed by an upward shift
of the agricultural products’ inverse-demand functions, as well
as a rise in landfilling costs due to the associated increase in land
scarcity. While our model may be used to evaluate the impact
of such changes, the changes themselves are hard to predict.
Hence, it is concluded that a reform of the waste-management
system should be flexible enough to enable adjustment to dif-
ferent circumstances. For instance, government enforcement
of the 50% landfilling targets set in Israel (IMEP, 2008b) is a
nonflexible approach that may lead to inefficiency.
How applicable is this analysis to other cases throughout the
world? At the heart of the model stand the compost production
functions, estimated based on data collected from the scientific
literature. This information can be used in similar analyses of
regions facing the same challenges, particularly in countries
where landfilling is costly due to land scarcity, regions in which
high consumption of fresh fruits and vegetables leads to MSW
with high organic content, and areas with low content of organic
161
matter in the soil, for example, Southern California, Australia,
Portugal, Spain, Southern France, Italy, and Greece (Zdruli
et al., 2004). On the other hand, our analysis abstracts in various
aspects, which may constitute objectives for future research
avenues. One development may be the discrimination among
productivity levels of different types of compost, in combination
with application to a variety of soils and types of irrigation
water. Another noteworthy extension would involve accounting
for potential positive and negative impacts of compost on the
quality of yields (Hargreaves et al., 2008; Zennaro et al., 2005),
which may influence recommendations for compost application
and affect compost-production costs and prices of agricultural
products.
Acknowledgment
The authors thank the reviewer and editor for helpful com-
ments, and the Israeli Ministry of Environmental Protection for
funding support.
Appendix I
The PMP calibration procedure is based on viewing farm-
ers as price takers, referring to each region k as a single
farm, and considering land allocation observed in the base
period as optimal from the farmers’ point of view. Define
gk = {gk1 , . . . , gk42 } as region k’s land allocation and let
π̄km = pm ȳm − ām (ψ − ρ̄km ) − ωm be the base-year per hectare
profit of crop m in region k, where ρ̄km ($ ton−1 ) is the base-year
compost’s fertilizer-equivalent value. In our application, we set
ρ̄km = 0, since farmers tend to ignore the fertilization value
of compost (Afik Engineering and Lavee, 2000). The regional
farming profit is expressed as a linear-programming  problem,
in which gk is set so as to maximize πk (gk ) = 42 m=1 gkm π̄km ,
42
subject to the regional land constraint, m=1 gkm ≤ Gk , and
an additional set of 42 auxiliary land-calibration constraints,
gkm ≤ ḡkm + ε, where ε is a perturbation element, the role
of which is to ensure the effectiveness of the regional land
constraint. Letting m = 1 denote the crop with the lowest
base-year average per-hectare profit, the dual value of the
regional land constraint, λ1k ($ ha−1 per year), is given by
λ1k = p1 (ȳ1 − y1 ) − ā1 (ψ − ρ̄k1 ) − ω1 . Then, λ2km ($ ha−1
per year)—the dual value of the auxiliary land-calibration con-
straint with respect to crop m, gkm ≤ ḡkm + ε, m = 1, . . . , 42—
can be calculated according to λ2km = π̄km − λ1k . By substitut-
ing ωm = ς1km + ς2km (ḡkm )γ −1 , we get ς2km = λ2kmγ −1 and
(γ −1)ḡkm
ς1km = ωm − λ2km
γ −1
for every crop m, m = 1, . . . , 42.
Appendix II
 14
Let cjw = α w 14 i=1 wij , cj = α
s s
i=1 sij and cj =
l
 13
α l k=1 lij be the amount of compost produced in plant j from
162 I. Kan et al. / Agricultural Economics 41 (2010) 151–163

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