The Role of Neighborhood Effects on Investing Dairy Farms

For the traditionally small-scaled Swiss agriculture, large economies of scale exist in dairy farming. Farm expansion is typically linked to a barn investment, but the opportunities for expanding the necessary acreage are limited. To enable an investing farm to expand its acreage, neighboring farms must shrink or phase out. Hence, the question arises how neighboring farms affect investing farms. To address this farm management question, we used a set of Farm Accountancy Data Network data and government data on subsidized projects. We combined this dataset with agricultural census data to assess the concentration of agricultural land as well as the number of subsidized investments within the municipality of an investing farm. By means of random-effects models for agricultural income per family working unit on the one side and herd size change on the other, we found two effects of neighborhood effects. A high number of subsidized projects and a high concentration of land (Gini coefficient) limited the growth in herd size due to scarcity of available land. At the same time, neighborhood positively influenced the management, leading to a higher agricultural income per family working unit. The results illustrate that an extension of the Farm Accountancy Data Network data, which in itself is extensive, can further help to address specific research questions.