Farm Consolidation as an Example of Internalizing Externalities in Agriculture

The paper deals with the issue of internalising external effects arising during agricultural production. An example was the account of an agritourism farm and a swine farm. Using the Edgeworth box concept, difficulties in establishing a market equilibrium without precisely established property rights are presented. The aim of the study was to indicate a possible solution to the problem of negative external effects. It was indicated that the internalization of unfavorable phenomena resulting from agricultural production may take place across farms. The rationality of such a solution was documented using the profit maximization functions of separate and post-merger farms. In a newly established entity, in order to maximize the benefits of pig production and the offered accommodation places, the factors increasing the emission of odor to the atmosphere should be limited to a socially acceptable level. The theoretical nature of the presented possibilities of limiting the adverse effects of agricultural production for society may take on real shape. The currently observed direction of changes in agriculture towards the creation of farms with an increasing area allows to suppose that a certain amount of negative externalities will be limited, and therefore the social costs of production will partially be reduced. It is difficult to indicate specific values, e.g. reduced social costs, but it is important that the direction of changes is socially desirable.