Farmers’ Heterogeneous Responses to Price Variations: Identification of Dairy Farms Flexibility based on a Panel Smooth Transition

We propose a model of farm input use decisions that accounts for the potential existence of adjustment costs incurred by farmers when adjusting their variable inputs in response to price variations. This model allows characterizing the heterogeneity in the short run flexibility of farms. It is estimated on a sample of dairy farms located in the West of France. Our estimation procedure relies on a panel smooth transition regression approach, which we adapt to account for the specificities of our sample. The estimation results show non-linear responses of dairy farmers' acreages and feed input use decisions to input and output prices, suggesting the existence of input adjustment costs. Our results also reveal an heterogeneity of adjustment costs among farms which translates into an heterogeneity in their degree of reaction to large price variations, the more flexible farms being generally less indebted and showing better environmental performances than the sample average.