Effects on Investment of the 2003 CAP Reform: A Household Production Model for Dutch Dairy Farms

This paper develops a non-separable household production model capable of analysing the effects of the 2003 CAP reform, and especially EU farm payments, on individual Dutch dairy farms. Model results show that the 2003 CAP reform farm payments do not fully compensate the income loss caused by the milk price decrease. This implies that savings, and therefore, investment decreases. Investment shifts away from on-farm investment to off-farm investment. On-farm investment in milk quotas falls compared to investment in capital and land because the shadow price of milk quotas decreases relatively to the shadow prices of land and capital.direct income payments, investment, household production model, Agricultural and Food Policy, Q12, Q18,

Uncertain Land Availability and Perceived Biases in Investment Decisions: The Case of Dutch Dairy Farms

Uncertainty about the possibility of acquiring land can be rather large in the EU for sectors like dairy farming. Farm-level investment decisions are commonly made ex-ante when the farmer is not certain about the possibility of purchasing land. This possibility is realized only in a future period. In this paper, we have developed and applied a simple two-period model in which a profit-maximizing farmer, facing uncertainty about the possibility of acquiring land, had to choose the optimal mix of capital (buildings) investment and land endowment. We have shown that commonly "observed" biases towards non-optimal investment decisions are not necessarily justified. Rather, these perceived biases may be the result of evaluating investment decisions without reference to the uncertainty associated with the possibility of acquiring land.investment, land, uncertainty, Land Economics/Use,

The Role of Transaction Costs and Bargaining Power in Wildlife and Landscape Services Production: A Micro-Econometric Model for Dutch Dairy Farms

In this paper a theoretical and empirical model is developed for analysing the decisions of individual farmers whether or not to produce wildlife and landscape services, how much of these services to produce and form an environmental co-operative in order to reduce transaction costs or to build up bargaining power. The model is applied for Dutch dairy farmers as the main users of agricultural land in the Netherlands. Simulations show that the reduction of transaction costs makes it attractive for farmers to form an environmental cooperative in case of a fixed price for wildlife and landscape services. Therefore more wildlife and landscape services are produced and more farmers are involved compared to a situation with individual supply. If demand is no longer perfectly elastic an increase in wildlife and landscape services production leads to lower prices offsetting part of the production and profit increase caused by lower transaction costs. However, if the environmental co-operative acts like a monopolist its bargaining position leads to a decrease in the production of wildlife and landscape services and higher prices.wildlife and landscape management, micro-econometrics, transaction costs, co-operation, Livestock Production/Industries,

The Impact of Milk Quota Abolishment on Dutch Agriculture and Economy: Applying an Agricultural Sector Model Integrated Into a Mixed Input-Output Model

A modelling system is presented and used to analyse the impact of milk quota abolishment on Dutch agriculture and economy. The modelling system consists of a regionalised, agri-environmental, partial equilibrium, mathematical programming model of agriculture supply in the Netherlands integrated into a mixed input-output model. It was found that abolition of the milk quota system has large impacts on milk production and livestock numbers and composition. The latter is explained by the strict mineral and manure policies in the Netherlands; an increase in the numbers of dairy cows leaves less room for other livestock. It is also found that, although the total effect on gross value added in the Dutch economy is limited, the effects for individual industries can be large.Mathematical programming, Manure markets, Input-Output, Dairy policy, Agribusiness,

Farm growth and exit: consequences of EU dairy policy reform for Dutch dairy farming

The purpose of this paper is to analyse farm growth and exit and its interaction in Dutch dairy farming as consequences of the 2003 CAP reform and 2008 CAP Health Check. Results indicate that the decision to exit dairy farming is largely determined by household characteristics as age and the size of the household. Farm growth is strongly influenced by the availability of labour, capital and land. Simulation results show that the dairy policy reforms reduce farm growth and exit. This is mainly caused by the quota increases.Agricultural and Food Policy,

Agri-environmental schemes in the European Union: the role of ex ante costs

The purpose of this paper is to analyse land allocation between competing agri-environmental contracts taking into account institutional issues and farm household and farm characteristics. We consider a Biodiversity Protection Contract, Landscape Management Contract and a Restriction on Intensive Practises Contract. The paper shows that it is important to study the choice for an agrienvironmental contract in combination with the choice for other agri-environmental contracts. The reasons being that a unit of land can only be allocated to one contract (although a farm can select more than one contract) and perceived relative marginal costs of contracts can change if institutional settings and farm household and farm characteristics alter. The model uses a two stage method. In the first step the probability of contract choice is determined. In the second stage these probabilities are linked to ex ante costs (including transaction costs) and optimal contract choice is determined.Agri-environmental contracts, transaction costs, contract choice, Agricultural and Food Policy, Environmental Economics and Policy, Land Economics/Use,

Plant Species Protection Contracts: Modelling Contract Choice for Specialised Dairy Farms and Mixed Dairy Pig Fattening Farms in the Netherlands

Proposals of the European Commission stress the future importance of agri-environmental payments within the rural development policy of the European Union. The aim of this paper is to present and discuss a model for choice for plant species protection contracts in the Netherlands. The model includes transaction costs, time and the possibility of lock-in situations related to contract choice. The approach discussed is flexible because it makes it possible to introduce all kinds of technical and institutional restrictions (differences in contract design).agri-environmental contracts, contract choice, Environmental Economics and Policy, C61, L14, Q12, Q24,

Structural change in the EU dairy sector

The aim of this paper to determine how structure and governance in the dairy sector in four different regions in the European Union alter as a result of the change in EU’s dairy policy. For this purpose two models of structural change are developed and interviews are held. Results differ between the regions depending on whether or not they are export oriented, their growth in farm size and farm exit rates.structural change, dairy policy, governance, Agricultural and Food Policy, Farm Management, Land Economics/Use,

Resilience of European farms under different CAP scenarios

The upcoming reform of the Common Agricultural Policy will put pressure on agricultural incomes and will cause more price volatility and income risk for farms in the EU. This raises the question if and how farms will survive these disturbances. Farms are able to survive only if they respond appropriately to disturbances. This resilience of farms is explained in this research by analysing the number of strategies that farmers indicate that they will use in a situation where the current CAP will continue and in a situation where it will disappear. The outcomes show that under both scenarios large more specialised farms with young farm heads are most resilient, and small more diversified farms headed by old farmers are least resilient. Results also show that farms that indicate to exit are the ones that are most dependent on CAP support, have old farm heads, and are part-time and diversified farms.resilience, governance, CAP reform, count model, Agricultural and Food Policy, Farm Management,

Resilience of European farms under different CAP scenarios

The upcoming reform of the Common Agricultural Policy will put pressure on agricultural incomes and will cause more price volatility and income risk for farms in the EU. This raises the question if and how farms will survive these disturbances. Farms are able to survive only if they respond appropriately to disturbances. This resilience of farms is explained in this research by analysing the number of strategies that farmers indicate that they will use in a situation where the current CAP will continue and in a situation where it will disappear. The outcomes show that under both scenarios large more specialised farms with young farm heads are most resilient, and small more diversified farms headed by old farmers are least resilient. Results also show that farms that indicate to exit are the ones that are most dependent on CAP support, have old farm heads, and are part-time and diversified farms.resilience, governance, CAP reform, count model, Agricultural and Food Policy, Farm Management,