Considering milk price volatility for investment decisions on the farm level after European milk quota abolition.

After the abolition of the milk quota in the European Union, milk price volatility is expected to increase because of the liberalized market conditions. At the same time, investment appraisal methods have not been updated to capture the increased uncertainty. Therefore, the objective of this paper is to assess the effect of changing price volatility due to quota abolition on investment decisions at the dairy farm level. To contribute to the objective and to approximate milk price volatility after the European milk quota abolition, the risk-adjusted discount rate for risk-averse dairy farmers is derived based on the milk price volatility of a milk price series from New Zealand. New Zealand dairy farmers have faced liberalized market conditions for more than 3 decades. Afterward, the risk-adjusted discount rate is applied to appraise milking technology investments for an average German dairy farmer. The results show that it is still more reasonable to invest in a parlor system than an automated milking system, although the net present value of the parlor system investment varies between €191,723 for risk-neutral dairy farmers and €100,094 for modestly risk-averse dairy farmers. For the automated milking system investment, the same calculations lead to €132,702 for risk-neutral dairy farmers and €31,635 for risk-averse dairy farmers. According to higher levels of milk price volatility after milk quota abolition, the reduction of the expected utility of the underlying investment decision for modest risk-averse dairy farmers is almost similar to a milk price decrease of 5% for risk-neutral dairy farmers. Therefore, the findings urge finance providers and extension services to consider the change of increasing milk price volatility after dairy quota abolition when giving dairy farmers financial advice. The risk-adjusted discount rate is a flexible tool to do so.

Analysis of farmers' willingness to participate in pasture grazing programs: Results from a discrete choice experiment with German dairy farmers.

Over the last decades, the usage of pasture for grazing of dairy cows has decreased considerably. Pasture grazing programs initiated by dairy companies try to counteract this trend. The present paper investigates farmers' willingness to participate in such grazing programs. A special aim was to quantify the price premiums farmers require for program participation and to identify determinants influencing the premium level. The empirical analysis is based on a discrete choice experiment with 293 German dairy farmers. Models are estimated in terms of willingness to accept. It was found that farmers have no substantial preference for whether the pasture grazing program is financed by the food industry, a governmental scheme, or the dairy company. However, an extension of the annual or daily grazing period results in a decreasing willingness of farmers to participate in a pasture grazing program. In addition, farmers decline the option of a feeding standard prescribing the use of only green fodder when offered an alternative program that merely reduces the amount of concentrated feed or maize silage in the diet. Farmers' with an aversion toward program participation have a significant higher price demand for fulfilling the program requirements. Furthermore, the required price premiums increase with growing milk yields and a greater number of cows kept on the farm. However, if the availability of pasture is high, farmers are more likely to participate. The estimated price premiums and factors influencing farmers' willingness to participate found by this study should be considered by dairies and policymakers to gain insights into the design of possible pasture grazing programs from the perspective of farmers. Thereby, paying price premiums to farmers may increase the attractiveness of pasture grazing, which could finally result in an extended usage of pasture grazing.

Cost-oriented evaluation of ecosystem services under consideration of income risks and risk attitudes of farmers.

Agri-environmental measures are often not as accepted among farmers as is expected. The present study investigates whether changes in income risks and the individual risk attitudes of farmers may constitute an explanatory approach for the low acceptance of the measures. For this purpose, a normative model is developed that calculates the premia claimed by the farmers for adopting environmental measures under the consideration of income risks and different risk attitudes. We apply this model to environmental measures aiming at an increase of the faunistic diversity of species on grassland and showing that changes in income risks and the decision makers' risk attitudes can significantly influence farmers' minimum compensation claims.