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Dairy farms without quotas in Belgium: estimation and simulation with a flexible cost function

Author

Listed:
  • Bruno Henry de Frahan
  • Alexandre Baudry
  • Rembert De Blander
  • Philippe Polomé
  • Richard Howitt

Abstract

This paper evaluates the farm-level supply and income effects from removing milk quotas and reducing producer prices with increasing direct compensatory payments. Using a panel of Belgian dairy farms, we first estimate a multi-output multi-input flexible cost function that generates a U-shaped marginal cost curve for each farm of the sample. We then embed each farm cost function in a profit-maximisation programming model that is built and calibrated for each farm in the sample. Accounting for farm heterogeneity, the simulations show how dairy farms without quotas may respond differently to changes in prices and structural changes that may take place within the dairy sector. A quota removal with a 20 per cent reduction in milk prices keeps aggregate milk supply and farm income at about the same level of the 2006 reference year. , Oxford University Press.

Suggested Citation

  • Bruno Henry de Frahan & Alexandre Baudry & Rembert De Blander & Philippe Polomé & Richard Howitt, 2011. "Dairy farms without quotas in Belgium: estimation and simulation with a flexible cost function," European Review of Agricultural Economics, Oxford University Press and the European Agricultural and Applied Economics Publications Foundation, vol. 38(4), pages 469-495, October.
    • Handle: RePEc:oup:erevae:v:38:y:2011:i:4:p:469-495
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    File URL: http://hdl.handle.net/10.1093/erae/jbr013
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    1. Ang, Frederic & Oude Lansink, Alfons, 2014. "Dynamic profit inefficiency: a DEA application to Belgian dairy farms," 2014 International Congress, August 26-29, 2014, Ljubljana, Slovenia 182649, European Association of Agricultural Economists.
    2. Salou, Thibault & van der Werf, Hayo M.G. & Levert, Fabrice & Forslund, Agneta & Hercule, Jonathan & Le Mouël, Chantal, 2017. "Could EU dairy quota removal favour some dairy production systems over others? The case of French dairy production systems," Agricultural Systems, Elsevier, vol. 153(C), pages 1-10.
    3. Hansen, Kristiana & Frahan, Bruno Henry de, 2011. "Evaluation of Agro-Environmental Policy through a Calibrated Simulation Farm Model," 2011 International Congress, August 30-September 2, 2011, Zurich, Switzerland 114577, European Association of Agricultural Economists.
    4. Maximilian Koppenberg, 2023. "Markups, organic agriculture and downstream concentration at the example of European dairy farmers," Agricultural Economics, International Association of Agricultural Economists, vol. 54(2), pages 161-178, March.
    5. Wimmer, Stefan G & Sauer, Johannes, 2016. "Diversification Versus Specialization: Empirical Evidence On The Optimal Structure Of European Dairy Farms," 56th Annual Conference, Bonn, Germany, September 28-30, 2016 244882, German Association of Agricultural Economists (GEWISOLA).
    6. Wimmer, Stefan & Stetter, Christian & Schmitt, Jonas & Ringer, Robert, 2022. "Farm-level responses to weather trends," 96th Annual Conference, April 4-6, 2022, K U Leuven, Belgium 321221, Agricultural Economics Society - AES.
    7. Jerzy Marzec & Andrzej Pisulewski, 2015. "Analysis of the Economic Activity of Dairy Farms in Poland: Results obtained from the Short-run Cost Function," Collegium of Economic Analysis Annals, Warsaw School of Economics, Collegium of Economic Analysis, issue 39, pages 167-182.
    8. Viaggi, Davide & Raggi, Meri & Gomez y Paloma, Sergio, 2011. "Farm-household investment behaviour and the CAP decoupling: Methodological issues in assessing policy impacts," Journal of Policy Modeling, Elsevier, vol. 33(1), pages 127-145, January.
    9. De Blander, Rembert & Frahan, Bruno Henry de, 2011. "Analysis of Technical and Policy Changes for Belgian Dairy Farms Using an Estimated Augmented SGM Cost Function," 2011 International Congress, August 30-September 2, 2011, Zurich, Switzerland 114546, European Association of Agricultural Economists.
    10. Charlebois, Sylvain, 2016. "Policy-change Triggered Environmental Uncertainty in a Dairy Cooperative: The Case of Mila in South Tyrol," International Journal on Food System Dynamics, International Center for Management, Communication, and Research, vol. 7(3), pages 1-13, July.
    11. Stefan Wimmer & Christian Stetter & Jonas Schmitt & Robert Finger, 2024. "Farm‐level responses to weather trends: A structural model," American Journal of Agricultural Economics, John Wiley & Sons, vol. 106(3), pages 1241-1273, May.
    12. Hirsch, Stefan & Barissoul, Ayoub & Möhring, Niklas & Koppenberg, Maximilian, 2024. "Market power, profitability and the decision to exit organic dairy farming in the EU," IAAE 2024 Conference, August 2-7, 2024, New Delhi, India 344258, International Association of Agricultural Economists (IAAE).
    13. Samson, G.S. (Sabrina) & Gardebroek, Koos & Jongeneel, Roelof A., 2012. "The Cost Function Structure of Dutch Dairy Farms: Effects of Quota abolition and Price Volatility," 126th Seminar, June 27-29, 2012, Capri, Italy 125956, European Association of Agricultural Economists.
    14. Stefan Wimmer & Johannes Sauer, 2020. "Profitability Development and Resource Reallocation: The Case of Sugar Beet Farming in Germany," Journal of Agricultural Economics, Wiley Blackwell, vol. 71(3), pages 816-837, September.
    15. Wimmer, S. & Sauer, J., 2018. "Productivity-Enhancing Reallocation and Capital Structure of Downstream Markets - Empirical Evidence from the European Sugar Market," 2018 Conference, July 28-August 2, 2018, Vancouver, British Columbia 277377, International Association of Agricultural Economists.
    16. Letort, Elodie & Dupraz, P, 2023. "Animal feed as a lever to reduce methane emissions: a micro-econometric approach applied to French dairy farms," Working Papers 338908, Institut National de la recherche Agronomique (INRA), Departement Sciences Sociales, Agriculture et Alimentation, Espace et Environnement (SAE2).
    17. Juan Aparicio & Magdalena Kapelko & Lidia Ortiz, 2021. "Modelling environmental inefficiency under a quota system," Operational Research, Springer, vol. 21(2), pages 1097-1124, June.

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