This paper deals with the calculation of the long-term elasticity of the milk supply with respect to the milk price in the Netherlands during the period 1969–1984. Because the individual farmer decides upon (changes in) this supply, we consider the underlying decision process at the farm as an obvious point of departure. For this farm we formulate a dynamic, alpha-numerically specified model of supply. From this model we derive decision rules for the optimal level of the (des)investments in the dairy cow stock. The resulting reaction equations specify these levels as a function of, among other things, present and expected prices. So these relations provide a starting point for e.g. the estimation of this long-run elasticity.

The long term elasticity of the milk supply with respect to the milk price in the Netherlands in the period 1969-1984

In this paper we formulate an alpha-numerically specified model for the determination of the level of (des)investments in live stock by a dairy farm. From this model we derive reaction equations for the optimal level of the inand outflow of dairy cows. Rearranging these equations provides a specification of the determinants of the milk supply in the long run. This model was used as a point of departure for the estimation of the long run milk supply elasticity in the Netherlands during the period 1969-1984. By starting from a model of the optimizing behaviour of the farmer, an underpinning of the milk supply model, to be used in estimation, is ob¬ tained. Having a micro-economic foundation, the derived specification gains cogency in comparison to a supply model specified on the basis of plausibility considerations and/or considerations related to the con¬ venience of estimating. Department of Econometrics, Tilburg University, Postbox 90153, 5000 LE Tilburg, tel. 013-662054.

J.H.J. Roemen

Papers

The derivation of a long term milk supply model from an optimization model