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European Review of Agricultural Economics Advance Access originally published online on August 11, 2005
European Review of Agricultural Economics 2005 32(4):517-537; doi:10.1093/erae/jbi024
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© Oxford University Press and Foundation for the European Review of Agricultural Economics 2005; all rights reserved. For permissions, please email journals.permissions@oxfordjournals.org

Effects of EU dairy policy reform for Dutch dairy farming: a primal approach using GMM estimation

Daan L. Ooms and Jack H. M. Peerlings

Wageningen University, Wageningen, The Netherlands

Corresponding author: D. L. Ooms, Department of Social Sciences, Agricultural Economics and Rural Policy Group, Wageningen University, Hollandseweg 1, 6706 KN Wageningen, The Netherlands. E-mail: daan.ooms{at}wur.nl

Received August 2003; final version received June 2005

This paper estimates a production function for milk using a generalised method of moments estimator to avoid the endogeneity problem. Using the first-order conditions for profit maximisation, the economic effects for individual Dutch dairy farms of the 2003 EU dairy policy reform are analysed. With an expected milk price decrease of 21 per cent, profit decreases on average by 22 per cent. EU direct payments compensate for roughly 53 per cent of this fall in profit. The profit reduction means that 69 per cent of all small farms have negative income from farming, compared with 15 per cent in the initial situation.

Keywords: production function, generalised method of moments, dairy policy, milk quota, farm household income

JEL classification: Q12, Q18, C23


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