Growth of German dairy farms under the EU milk quota

We estimate determinants of growth among German dairy farms between 1997 und 2005 under the EU milk quota system. Higher milk yield per cow, more family labour, and higher milk prices increase the growth rate of growing farms, ceteris paribus. Older growing farmers tend to grow at lower rates. In line with Weiss’ findings (1999) for Austrian farms, Gibrat’s Law of relative firm growth being independent of initial firm size does not hold for our subsample of farms growing in milk production, either: the growth rate is quite high for small farms and has a minimum for farms around 325,000 kg of initial quota. For the 16% of growing farms that have more initial quota the growth rate increases up to some out-of-sample maximum. We corrected for selection bias by means of a multinomial logit model which explains the choice among different growth regimes in more detail than the well-known Heckman procedure. In our case, e.g. age impacts the choice between growth and stagnation but not between growth and exiting from milk production; crop subsidies only influence the decision between growth and exiting from milk production but not the decision between growth and decline or stagnation.