What Drives SMEs’ Willingness to Switch to Sustainable Production Systems? Evidence from the Netherlands

ABSTRACT. This paper examines the impact of SMEs’ risk perceptions, risk attitudes, market orientation, level of understanding, and characteristics on their willingness to switch to/invest in SPSs. To the best of our knowledge, this is the first empirical study that focuses on the impact of latent factors of SMEs’ strategic decision making with respect to the adoption of SPSs. With data from 57 in-depth interviews and 355 personal (computer-guided interviews) with SMEs in agri-food and hospitality markets in the province of Limburg, the Netherlands, we find that the risk perception of SMEs has a negative impact on their decision to switch to/invest in SPSs, while innovativeness, market-orientation, education, age, and turnover of SMEs increase the likelihood of switching to/investing in SPSs. Yet, the importance and the magnitude of the impact of these factors differ among the SMEs in the agri-food and the hospitality markets. SMEs such a hotels and restaurants seem to be more prone to take risks and engage in SPSs rather than SMEs (e.g., farmers) in the agri-food industry. Understanding the factors that play a crucial role in the willingness of SMEs to switch/invest in SPSs may reveal insights for policymakers and managers in the agri-food and hospitality markets, who wish to increase the likelihood of SMEs’ switching to SPSs. Hence, more informed decisions regarding the design of policies and strategies to increase the adoption of sustainable production systems can be made. For example, our results indicate that the risk perception of SMEs seems to be a barrier to the adoption organic practices. Such a barrier may be removed when SMEs receive education and training on how to evaluate, manage and mitigate the potential risks when they may opt to change their production practices. In addition, governmental agencies and public policy initiatives may facilitate SMEs by providing them with a minimum return (e.g., tax allowances) for their investment in sustainable practices during a specific time window and by doing so temporarily reduce the risk adjusted cost of capital for SMEs that make the switch to SPSs