Investment decisions on Dutch dairy farms

In this research we estimate investment equations for both buildings and machinery for Dutch dairy farmers producing under a quota regime. In the investment equations the impact of capital adjustment costs and external finance costs is taken into account. Moreover, potential sample selection bias in estimating the buildings investment equation is tested to be absent. We present a new approach in the derivation of investment equations containing financial variables. With the estimated investment equations we assess the impact of 2003 CAP reform on investment decisions of Dutch dairy farmers producing under a quota regime