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Probability of economic success for Netherlands dairy farmers moving operations to the United States

by Duncan, Anthony Ray

Abstract (Summary)
Dairy producers in the Netherlands are struggling to stay in business due to

increased environmental legislation, population density, intensity of farming systems,

costs of production and quota restrictions. One option available to Netherlands dairy

farmers is to liquidate the value of their assets, put the money into an international bank,

and buy an established dairy farm in the United States. The primary objective of this

research is to compare the economic viability of a Netherlands dairy farmer staying in

the Netherlands versus moving to the United States, assuming they will bring over all of

their equity to put towards the purchase of a U.S. farm.

The hypothesis that a Dutch dairy farmer would have a greater probability of

economic success by relocating to the U.S was tested using a whole farm simulation

model (FLIPSIM) to simulate the economic activity of a representative dairy farm in the

Netherlands and 23 representative U.S. dairy farms in the major dairy producing regions

over the 2002-2011 planning horizon. FLIPSIM generated an empirical probability

distribution for net present value to rank the representative farms using stochastic

efficiency with respect to a function (SERF) for risk neutral and risk averse decision

makers.

The FLIPSIM results showed that six of the twenty-three U.S. dairy farms would

give the Dutch farmer a 99% chance of economic success. The added risk on income in

the U.S. would result in these U.S. farms having a 1 to 99% chance of negative ending

cash reserves (ECR) and a 1 to 99% chance of negative net cash farm income (NCFI).

In a complete SERF analysis, seventeen of the twenty-three U.S. farms were preferred

over the Dutch farm. In conclusion, the research shows Dutch dairy farmers with

adequate equity would be financially better off by relocating to the U.S. if they desire to

continue dairying, rather than staying in the Netherlands.

Bibliographical Information:

Advisor:Klinefelter, Danny A.; Richardson, James W.; Tomaszewski, Michael

School:Texas A&M University

School Location:USA - Texas

Source Type:Master's Thesis

Keywords:dairy stochastic efficiency with risk to a function serf simulation

ISBN:

Date of Publication:12/01/2004

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