Modelling the adoption of automatic milking systems in Noord-Holland

Innovation and new technology adoption represent two central elements for the business and industry development process in agriculture. One of the most relevant innovations in dairy farms is the robotisation of the milking process through the adoption of Automatic Milking Systems (AMS). The purpose of this paper is to assess the impact of selected Common Agricultural Policy measures on the adoption of AMS in dairy farms. The model developed is a dynamic farm-household model that is able to simulate the adoption of AMS taking into account the allocation of productive factors between on-farm and off-farm activities. The model simulates the decision to replace a traditional milking system with AMS using a Real Options approach that allows farmers to choose the optimal timing of investments. Results show that the adoption of AMS, and the timing of such a decision, is strongly affected by policy uncertainty and market conditions. The effect of this uncertainty is to postpone the decision to adopt the new technology until farmers have gathered enough information to reduce the negative effects of the technological lock-in. AMS adoption results in an increase in farm size and herd size due to the reduction in the labour required for milking operations.