Analysis of dairy production systems differentiated by location

• Applicant: Professorin Dr. Christine Wieck
• Subject Area: Agricultural Economics, Agricultural Policy, Agricultural Sociology
• Term: from 2012 to 2016
• Project identifier: Deutsche Forschungsgemeinschaft (DFG) - Project number 220350009

Dairy farming across Germany displays diverse production systems. Factor endowment, management, technology adoption as well as competitive dynamics in the local or regional land, agribusiness and dairy processing sectors contribute to this differentiation on farm level. These differences impact on the ability of dairy farms and regional dairy production systems to successfully respond to pressures arising from future market and policy changes. The overall objective of the research activities of which this project is a part of, is to develop a thorough understanding of the processes that govern the spatial dynamics of dairy farm development in different regions in Germany. The central hypothesis of this research project is that management system and technological choices differ systematically across local production and market conditions. The empirical approach will focus on the estimation of farm specific nonparametric cost functions for dairy farms located in across Germany differentiated by time and location. A spatially differentiated data base with information on input use, resource availability, as well as local market conditions for land and output markets will be compiled. The nonparametric approach is specifically suited to disclose a more accurate representation of dairy production system heterogeneity across locations and time compared to parametric concepts as it provides the necessary flexibility to accommodate non-linearities relevant for a wide domain of explanatory variables. The methodology employed goes beyond the state of the art of the literature as it combines kernel density estimation with a Bayesian sampling approach to provide theory consistent parameters for each farm in the data sample.The specific methodological hypothesis is that the nonparametric approach is superior to current parametric techniques and this hypothesis is tested using statistical model evaluation. Regarding the farm management and technological choices, we hypothesize that land suitability for feed production determines the farm intensity of dairy production and thus management and technological choices. With respect to the ability of farms to successfully respond to market pressures we hypothesize that farms at the upper and lower tail of the intensity distribution both can generate positive returns from dairy production. These last two hypotheses will be tested using the estimated spatially differentiated farm specific costs and marginal costs.The expected outcomes are of relevance for the agricultural sector and the food supply chain economy as a whole as fundamental market structure changes in the dairy sector are ongoing due to the abolition of the quota regulation in the years 2014/2015. Thus, exact knowledge about differences and development of dairy cost heterogeneity of farms within and between regions are an important factor for the actors involved in the market as well as the political support of this process.

• DFG Programme: Research Grants
• Participating Person: Professor Dr. Thomas Heckelei