Externalities In Livestock Production On The Example Of Animal Welfare

Externalities occur when the decisions of production and consumption made by one market participant are directly affected by the decisions and actions of others, whilst this impact is not fully reflected in market prices. In case of livestock production, the examples are: agricultural landscape, biodiversity, carbon dioxide and methane emission, unpleasant odour and animal welfare, all called environmental externalities. The aim of the paper is to estimate the potential costs and benefits of possible changes in requirements associated with public goods and externalities generated by agriculture on the example of upgraded animal welfare standards in milk production. It was found, that implementing higher animal welfare standards may lead to a labourious increase in milk production. It may result in a farming scale decrease, an increase in labour costs (and production costs) and consequently lead to the deterioration of financial conditions. Revenues per cow increased in the analysed scenario in the case of the small and medium scale farms and remained stable in the case of the large scale farm. However, farm income decreased in the case of all farms. This is mainly due to employment, depreciation and an increase in financial costs.