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The diversification of farms can be a result of multifunctional farming, however, in some cases at the cost of lower farm efficiency. In our paper we investigate the influence of para-agricultural diversification on productivity and the technical efficiency of organic farms in Austria, Switzerland, and Southern Germany. We show the benefits and drawbacks of diversification for organic farms, which go beyond the core agricultural production (para-agriculture). We do this by estimating a Stochastic Frontier (SF) combined with a metafrontier model. The data-set consists of bookkeeping data with 1704 observations in the years 2003 to 2005. Para-agricultural diversification activities have a significant effect on both productivity and technical efficiency of organic farms: The farm output in Austria and Switzerland is positively influenced by diversification, whereas we observe a rather small effect in Southern Germany. On the other hand, diversification can reduce farms’ technical efficiency, as it is the case in Switzerland and Germany. Furthermore, our study confirms previous results that agricultural subsidies significantly influence the technical efficiency of organic farms. We also show expected changes of input use driven by increased farm diversification.

The Effects of Diversification Activities on the Technical Efficiency of Organic Farms in Switzerland, Austria, and Southern Germany