Economic flexibility and market behavior of farms in the dairy sector

B. Ivanov

Abstract: The goal of the research is to study the economic flexibility of Bulgarian farms in the dairy sector and to assess the efficiency and rationality of their production. It is supposed that abolition of the quota will impact mostly on the marginal costs wither than the milk demand and market access. The curve of marginal costs is envisaged to concur with the supply side curve, while in Bulgarian situation this curve is with logarithmic form, contrarily to the widely thought quadratic, U-shape curve of marginal costs. The study illustrates the presence of significant intergroup differences, as relatively the highest flexibility is ascertained in the middle size farms. The rationality explored by the research of marginal costs and revenues features with a heightening direction of the marginal revenues at the inception stage. However, with the utility function, which typifies with a decreasing slope is explained at the great extent the increase direction of the marginal revenues. The increase of the cow number leads to a decline in the intermediate consumption due to a diminishment of the marginal utility of the farm consumption thus bigger quantity of milk are delivered to the market, which marks marginal revenues up. Besides, the quota rent in the dairy sector currently is identified as comparatively high due to relatively big subtraction between marginal costs and marginal revenues at which most of the farms run. Thus the price shadow of the milk production is less than the new equilibrium price. However, the unpropitious situation is that this quota rent is taken not only from farmers but benefit mostly other participants in the chain.

Keywords: dairy farms; economic flexibility; market behavior; quotas; rationality

Date published: 2018-01-31