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

TLDR: In this article, an alpha-numerically specified model for the determination of the level of investment in live stock by a dairy farm is proposed, and reaction equations for the optimal level of the inand outflow of dairy cows are derived.

Abstract: 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.