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Economies of Scale in Production versus Diseconomies in Transportation: On Structural Change in the German Dairy Industry

Listed author(s):
  • Ole Boysen


    (Department of Economics, Trinity College Dublin)

  • Carsten Schröder


    (Department of Economics, University of Kiel)

This paper analyzes the structural change in the German dairy sector using a sector-wide optimization model. In particular, the model includes a spatially explicit representation of dairy processing farms and dairy farming regions to account for the trade-off between economies of scale in dairy production and diseconomies of scale in transportation. We simulate cost-optimal sectoral structures for different time horizons and various transport cost levels. The results demonstrate that the model is able to explain the trend towards fewer but larger dairies as currently observed in reality and indicate, ceteris paribus, a continuation of this trend. However, if the importance of transport costs increases relative to other costs in dairy production this trend might level off. The structural impacts found differ markedly by region.

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Paper provided by Trinity College Dublin, Department of Economics in its series Trinity Economics Papers with number tep0209.

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Length: 31 pages
Date of creation: Nov 2009
Handle: RePEc:tcd:tcduee:tep0209
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