Credit constraints and smallholder dairy production in the East African highlands: application of a switching regression model

Accurate assessment of farmers' credit constraint condition is important in order to understand the circumstances under which credit would have its greatest impact. In this study a switching regression model was used to determine the impact of credit on smallholder dairy farms in the East African highlands using farm level data from Ethiopia and Kenya. Farmers were classified as credit constrained or credit non-constrained based on their responses from the farm level surveys. No consistent relationship was found between farmers' credit constraint condition and their borrowing status. Most of the variation in milk output per farm was explained by the number of crossbred milking cows in the dairy herd. As credit is likely to facilitate investment in crossbred dairy cows it will have substantial impacts on smallholder dairy farms especially if it is targeted to credit constrained farms.     

Efficacitè technique et coûts de production dans les secteurs laitiers du Québec et de l'Ontario

This study aims to estimate the level of technical efficiency in milk production and to analyze the relationship between the costs of production, the level of technical efficiency and farm size. Furthermore, the socio-economic variables that characterize the most efficient farms and those producing at lower cost are identified. The results indicate that in Quebec, the level of technical efficiency increases with herd size, but this increase is very small. In Ontario, herd size is not significant to explain technical efficiency. The level of education, the participation in milk recording programs, expenditures per cow fort are and artificial insemination, the quality of hay and the number of years as member of a management club are a11 variables that characterize efficient farms.     

Tracing the evolution of the aggregate U.S. milk supply elasticity using a herd dynamics model

The U.S. dairy sector is characterized by increasing volatility of milk prices, and consolidation in production as evidenced by declining number of dairy farms with an increasingly larger share of milk supplied from a small number of very large farms. Using aggregate national data, we build a mixed‐frequency herd dynamics econometric model of the U.S. milk supply that updates and substantially amends the model first proposed by Chavas and Klemme. We implement a dynamic residual‐based bootstrap technique that can be used in testing for changes in nonmarginal simulated long‐run supply responsiveness, and trace the evolution of long‐run milk supply elasticity from 1975 through 2010. Several papers in the past have suggested that long‐run supply elasticity increases with dairy farm size, which implies that increased importance of large farms would increase aggregate long‐run supply responsiveness. Contrary to this conclusion, we find a declining trend in long‐run supply elasticity from 1975 through 2005. Persistence of such a decline would be a major cause for worry, as ever larger price swings would be needed to equilibrate the market in face of demand shocks. However, we find that milk supply is becoming more responsive since 2005 both to milk and feed price changes. Increasing responsiveness to feed prices further justifies focusing the next generation of the dairy policy instruments on managing dairy profit margins rather than just revenue streams.     

What Drives Marginal Abatement Costs of Greenhouse Gases on Dairy Farms? A Meta‐modelling Approach

This paper examines the relationships between the marginal abatement costs (MAC) of greenhouse gas (GHG) emissions on dairy farms and factors such as herd size, milk yield and available farm labour, on the one hand, and prices, GHG indicators and GHG reduction levels, on the other. A two‐stage Heckman procedure is used to estimate these relationships from a systematically designed set of simulations with a highly detailed mixed integer bio‐economic farm‐level model. The resulting meta‐models are then used to analyse how MAC vary across farm‐level conditions and GHG measures. We find that simpler GHG indicators lead to significantly higher MAC, and that MAC strongly increase beyond a 1–5% emission reduction, depending on farm attributes and the chosen indicator. MAC decrease rapidly with increasing farm size, but the effect levels off beyond a herd size of 40 cows. As expected, the main factors driving gross margins per dairy cow also significantly influence mitigation costs. Our results indicate high variability of MAC on real life farms. In contrast to time consuming simulations with the complex mixed integer bio‐economic programming model, the meta‐models allow the distribution of MAC in a farm population to be efficiently derived and thus could be used to upscale to regional or sector level.     

Diversification, Vertical Integration, and the Regional Pattern of Dairy Farm Size

Dairy farm size differs considerably across the United States. We analyze patterns of dairy farm size to determine how differences in vertical integration and diversification relate to farm size. We find that diversification accounts for little size variation. For vertical integration, the partial correlation with dairy herd size is strongly negative. Dairy value-added size measures vary less across regions than herd size, indicating that an important part of herd size variation relates to vertical integration. Nonetheless, dairy farms in the Pacific and South regions remain much larger than farms in the traditional dairy regions, even when accounting for vertical integration.     

Herd Growth,Farm Organisation and Subsidies in the Dairy Sector of Russia and Kazakhstan

Initially taken as a template for farm restructuring after the demise of collective agriculture, the ‘Western family farm model’ has taken root in the former Soviet countries only belatedly and incompletely. We examine dairy structures in Russia and Kazakhstan and analyse the drivers of recent herd growth. We are specifically interested in the role of farm management and organisation, vertical integration, and the role of policy. Regression analysis based on a sample of 180 randomly selected commercial dairy farms, using an innovative simultaneous equation framework, shows that better herd management and access to milk marketing contracts were more effective in stimulating herd growth than current subsidy payments. We do not find evidence that milking plants belonging to corporate entities or even supra‐regional agroholdings grow more substantially than medium‐sized individual farms. Twenty‐five years after the end of central planning, structural change among commercial dairy farms in Russia and Kazakhstan appears similar in many ways to the patterns observed in the West more recently: smaller farms catch up in terms of herd growth and classical family‐run operations coexist with or even emulate vertically integrated agribusinesses based on hired labour. In moving toward this ‘new normal’ of farming structures, commercial dairy farms in Russia may even be a few steps ahead of their Western counterparts. At the same time, the still sizeable but stagnating group of subsistence producers in rural households finds no equivalent in the West.     

Optimum Replacement Policies for the Control of Subclinical Mastitis due to S.aureus in Dairy Cows

A dynamic program was used to establish the optimum replacement policy for dairy herds, taking into account subclinical mastitis caused by the bacteria Staphylococcus aureus. This particular pathogen is resistant to normal drug therapies and therefore culling is the major method of control. Methods are described to account for output losses due to yield loss and a reduction in milk price caused by extra somatic cells secreted into the milk by infected cows. Extra culling was justified in both infected and control herds in order to reduce the level of infection in the herd. The method described allows replacement policy to be treated as control expenditure rather than an output loss in the economic analysis of farm animal disease. This approach will become even more important as consumers demand an alternative to the prophylactic use of antibiotics in agriculture without compromising food quality and safety.     

Technical efficiency,herd size,and exit intentions in U.S. dairy farms

The U.S. dairy industry has seen major restructuring in recent decades. A sharp decline in the number of U.S. dairy farms and an increase in average herd sizes have accompanied exits, which have been concentrated among smaller herds. Given that more productive farms are better positioned to increase operation size and to continue operation, we hypothesize that the more technically efficient farms are better able to expand and also have stronger incentives to continue production. Using data from the USDA's 2010 ARMS Phase III, Dairy Production Practices and Costs and Returns Report, we estimate technical efficiency using stochastic production frontier analysis with endogenous inputs. The efficiency estimate is then incorporated into the analysis of exit intention and herd size. The results confirm our hypotheses that smaller and less efficient farms are more likely to exit and that more efficient dairy farms tend to expand herd size. Moreover, farms without successors but with older and more educated operators are more likely to exit.     

Determinants, differentiation, and development of short-term marginal costs in dairy production: an empirical analysis for selected regions of the EU

This work provides evidence on the determinants, cost differentiation, and development of short‐term marginal costs of dairy farms in important production regions of the European Union. The empirical study is based on the estimation of multi‐input multi‐output Symmetric Generalized McFadden cost functions using an unbalanced panel data set of the European Farm Accountancy Data Network. The results show considerable regional differences in the impact of the outputs, input prices, and fixed factors on marginal costs. Strong evidence can be found that marginal costs decrease over time and is further underlined by the development of derived regional aggregated short‐term supply curves. Marginal cost elasticities and correlation coefficients validate the hypotheses that a high degree of farm specialization, large milk output, and low milk prices are associated with lower marginal costs. Furthermore, the marginal cost spread in the data sample is analyzed. We show that milk output, milk yield, herd size, labor input, and fodder production can be attributed to significant marginal cost differentiation of farms, whereas for crop and animal output, grassland, stock of other animals, and depreciation only minor differentiation can be found.     

The influence of weather conditions on dairy production

Relatively little attention has been paid in the economics literature to the effects of meteorological conditions on milk production. Meteorological variables can be expected to affect milk production through their impact on the productivity of cows and the production of foodstuff. Rather than including meteorological variables as inputs in the milk production process, we propose a production function where these variables affect the productivity of cows and the production of forage, thereby indirectly affecting milk production. Using production and meteorological data from the Spanish region of Asturias corresponding to 383 dairy farms observed during a six‐year period from 2006 to 2011, the results from our estimated production function show that meteorological variables have a significant impact on milk production. We find that milk production is higher under warm weather conditions due to improvements in forage production.     

Decomposition Measures of Technical Efficiency for Ontario Dairy Farms

Technical efficiency measures for Ontario dairy farms are computed and decomposed into purely technical, congestion and scale efficiency measures using a non-parametric programming approach. Approximately 42% of the farms in the sample are technically efficient, while the major sources of inefficiency for the remaining farms are due to pure technical allocation and to non-optimal scale of production. A censored regression indicate that herd size, milk yield and butterfat content of milk has a positive influence on efficiency, while negative effects are found from the proportion. of total feed purchased and overcapitalization. The variation in optimal scale between herd sizes implies a range of farm sizes will continue to exist, provided the appropriate technology for the scale of operation is chosen.
Des mesures d'efficacité technique pour des fermes laitières en Ontario sont calculées et ensuite décomposées en mesures de rendement techniques d'échelle et de congestion à l'aide d'une approche de programmation non-paramétrique. Environ 42% des fermes dans l'échantillon sont techniquement efficaces. Les principales sources d'inefficacité des autres fermes sont reliées à des problèmes d'allocation technique et d'échelle de production. Une régression censurée indique que la grosseur de troupeau, la production de lait par vache de même que le pourcentage de gras dans le lait ont une influence positive sur le rendement tandis que la proportion de fourrage acheté et la sous-capitalisation ont une influence négative. La variation dans l'échelle optimale de production par grosseur de troupeau laisse sous-entendre qu'on continuera de voir un certain écart dans la taille des fermes laitiéres si les technologies appropriées pour les differences échelles de production sont selectionnées.     

Economic Analysis of the Policy for Accreditation of Dairy Farms Free of Bovine Brucellosis and Tuberculosis: Challenges for Small and Large Producers in Brazil

One of the cornerstones of the National Program for Control and Eradication of Bovine Brucellosis and Tuberculosis in Brazil is the voluntary accreditation of free herds. We developed a stochastic cost–benefit analysis model for two types of dairy herds (high yield Holstein‐Zebu crossbred females and lower productivity smaller scale herds) to identify the technical and economic constraints of this process. The initial prevalence of infected animals and the impact of the disease in the structure and performance of the herd were derived from secondary data. Information on the costs and benefits of herd sanitation were compiled into a cost–benefit model at the herd level. The last step consisted of a scenario simulation to evaluate the impact of alternative policies to the certification process. For each scenario, we calculate the probability over time of a Benefit–Cost Ratio greater than 1 and of an Internal Rate of Return above 1% (the discount rate used in the model). Results show that larger and more intensive dairy farms, and also herds affected by brucellosis compared with tuberculosis‐positive herds, are more likely to achieve financial gains from the certification investment. The compensation for culled animals is important in the initial phase of herd sanitation and the premium payment on milk would help farmers to achieve a return on the investment over time. The model can be adapted to different and dynamic production, epidemiological and economic settings.     

The influence of management decisions and external factors on the dairy farmer's environmentally friendly farming objective: the Green Dairy experience

Ten dairy farms participated in an EU project that aimed to improve nitrogen use and assist with the adoption of more environmentally friendly farming practices. Nitrogen use and management decisions were monitored during 2003, 2004 and 2005. Nine farms improved nitrogen use (nitrogen output relative to input) in Year 2. Four farms maintained or further improved nitrogen use in Year 3. Management decisions and external factors that improved nitrogen use were increasing farm milk output, adopting best management practices for nitrogen use, growing forage crops that required less nitrogen than grass and favourable crop production conditions that rendered large quantities of good quality forage. Decisions that worsened nitrogen use were increasing cow numbers without sufficient management support, the late start of supplementary feeding when grass quality declined, setting the target yield too high, pursuing a higher milk price, less palatable silage and disease. Sufficient slurry storage is essential to improving nitrogen use. The savings from lower nitrogen input and the revenue from milk were in no proportion to the investments required for additional slurry storage, however. The farmers did adopt environmentally friendly practices, but only to the degree their businesses were able to sustain.     

HERD STRUCTURE AND MILK SUPPLY RESPONSE

Research on milk supply response has previously concentrated on changes in the national herd and changes in yield. It is argued that this does not provide a sound foundation for understanding the secular increase in milk output given generally declining real milk prices. A recent theory of farm size is outlined and adapted to explain changes in dairy herd size. The herd size determinants are the relative costs of labour and capital. The theory is used to specify equations which are estimated to explain changes in the number of herds, the average size of herds, and yields in England and Wales 1964–1982.     

Expected Economic Effects of BST in The Netherlands

The calculated profitability of using Bovine Somatotropin (BST) on typical dairy farms in The Netherlands ranges from Dfl.160 to 300 per cow per year, assuming 1985 prices and circumstances, and ignoring the costs of BST. A 20% increase in milk production and no change of the feed/milk relation were used for the calculations. BST is more profitable on intensive farms or on farms with more opportunities for alternative uses of land, buildings and labour. The quota system, however, leads to a considerable reduction of profitability. At a national level, and with an unchanged milk price, a 28% adoption rate of BST would increase national income about Dfl.120 million. However, the cost of BST or any decrease in milk price could reduce this amount, even to below zero. It is apparent that some dairy farmers who apply BST will earn more income whereas others will lose income.     

A FORECAST OF MILK SUPPLY IN ENGLAND AND WALES

This paper reports the problems encountered in applying Markov Chain analysis to the Permanent sample of milk producers in England and Wales, and presents predictions obtained for producer numbers and milk output, by regions, for the years 1970/71 and 1975/76. As a consequence of the “pool of entrants” problem, dificulties arise both in estimating the required transition probabilities and in forecasting producer numbers. Solutions to these, and to other problems concerned with obtaining prediction of milk output, from those of producer numbers, are proposed. It is forecast that producer numbers will decline by 18 per cent and 33 per cent by 1970/71 and 1975/76 respectively, with the largest proportional decline occurring among smaller producers. Two forecasts are made of milk supply and these are compared with estimates made by the Milk Morltetiiic Board.     

Determining farm effects attributable to the introduction and use of a dairy management information system in The Netherlands

Yearly production and reproduction data on dairy farms in The Netherlands were obtained to determine whether management information systems significantly improved herd performance variables (management information systems (MIS) effects). The analysis included 357 adopters of a management information system and 357 herds were used as controls. The data comprised years 1987 through 1996, and included for the adopters both the ‘before’ and ‘after’ period. Panel data analysis enabled to estimate MIS effects both within and between farms, allowing for a separation of farm‐specific effects and common (trend) effects. Adoption and use of a management information system resulted in a significant annual increase in rolling herd average milk (carrier) and protein production of 62 and 2.36 kg per cow, respectively. Calving interval was shortened by 5 days. The pay‐back period was approximately 5 years of the system (including the hardware), and therefore, MIS appears to be economically profitable.     

SIMULTANEITY IN THE UK DAIRY SECTOR*

Because of the high degree of interdependence in the livestock sector, the endogenous variables of econometric models should be simultaneously determined. This paper describes the specification, estimation and evaluation of a model of the UK dairy sector in which the herd size, number of culls, replacement heifer price and milk price are determined simultaneously. The major policy conclusion that emerges from the model is that any attempt to increase the price of milk received by farmers via a structural change in the policy rule used to fix the price will be offset by over 50% as a result of increases in the supply of milk.     

O‐Ring production on U.S. hog farms: joint choices of farm size,technology, and compensation

We hypothesize that hog production can be characterized by complementarities between new technologies, worker skills, and farms size. Such production processes are consistent with Kremer's O‐ring production theory in which a single mistake in any one of several complementary tasks in a firm's production process can lead to catastrophic failure of the product's value. In hog production, mistakes that introduce disease or pathogens into the production facility can cause a total loss of the herd. Consistent with predictions derived from the O‐ring theory, we provide evidence that the most skilled workers concentrate in the largest and most technologically advanced farms and are paid more than comparable workers on smaller farms. These findings suggest that worker skills, new technologies, and farm size are complements in production. The complementarities create returns to scale to large hog confinements, consistent with the dramatic increase in market share of very large farms over the past 20 years.     

Valuing Traits of Indigenous Cows in Central Ethiopia

This research aimed at identifying and estimating the relative weight assigned to the preferred traits of indigenous cow population in the most dominant crop–livestock mixed production system in Central Ethiopia. A choice experiment approach was employed to elicit the preferences and a random parameters logit model was used to estimate the relative importance of the preferred attributes of indigenous cows. The results show that fertility, disease resistance and calf vigour traits are at least as important as milk. The location the cows are brought from is also an important attribute for buyers. Results from the simulation on the influence of changes in attribute levels showed that fertility and disease resistance affect preferences more than other traits. The findings suggest that the smallholder community in this part of Ethiopia depends on semi‐subsistence agriculture and so livestock development interventions should focus on a multitude of reproductive and adaptive traits that stabilise the herd structure rather than focusing on traits that are only important for commercial purposes.