How important are crop shares in managing risk for specialized arable farms? A panel estimation of a programming model for three European regions

We estimate a dual cost function together with farmers’ risk attitude in a programming model setup which allows for zero activity levels and not binding constraints. We use crop shares as decision variables in order to avoid scale bias and to shed light on farm risk management strategies. The model is estimated for three unbalanced panels of specialized arable farms observed for at least three consecutive years in Northern Italy, Cologne-Aachen region in Germany and the Grandes-Culture Region of France over the time period 1995-2008. Our estimated models show quite satisfactory fit with regard to crop shares and costs while results indicate that specialised arable farms from these regions use crop shares only marginally as a risk management instrument. The supply elasticities with respect to price show values in a reasonable range. The cost reducing effects of farm size measured in hectare is neglectable and, as expected, we find a positive correlation between farm size and the number of crops grown in a year.