What are the preferences of Dairy Farmers regarding their Work? A Discrete Choice Experiment in the Eastern Part of Switzerland

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1 1 What are the preferences of Dary Farmers regardng ther Work? A Dscrete Choce Experment n the Eastern Part of Swtzerland Markus Lps and Chrstan Gazzarn Agroscope Reckenholz-Tänkon Research Staton ART, Tänkon, CH-8356 Ettenhausen, Swtzerland Abstract The paper analyzes the preferences of dary farmers wth respect to ther work by the means of a Dscrete Choce experment, whch was carred out n the Eastern part of Swtzerland. 304 dary farmers, who ntend to produce mlk beyond the abolshment of the mlk quota n 2009, were asked to choose between the status quo and alternatves consstng of several combnatons wth four attrbutes. The latter comprse work content, terms of employment, holday per year and ncome per year. Usng a probt model, the wllngness to pay/accept s calculated. The results ndcate that there s a strong preference to stay n dary producton. In order to acheve both, mantanng the level of utlty and movng away from dary producton, an addtonal ncome (wllngness to accept) per year of at least CHF would be necessary. The preferences of dary farmers show that dfferences between the alternatve work contents lke suckler cows husbandry, farmng wthout lvestock and work outsde of agrculture are mnor. Keywords dscrete choce, preferences, work content, dary farmng I. INTRODUCTION To run a dary farm s a demandng job. The treatment of the anmals as well as the cattle breedng requre hgh professonal sklls. In Swtzerland, a large proporton of fodder s normally produced on the farm. Therefore, knowledge n plant producton s also requred. In addton, a hghly tme-consumng factor les n the producton of mlk. Ths s manly due to the mlkng process. Snce the producton goes on every day, spare tme lke holdays and free weekends need to be planned and organsed well. To llustrate the ncome stuaton, we compare the work ncome per famly member (full tme) wth the comparable ncome. The latter s defned as an ncome a worker wth comparable qualfcatons mght earn n the ndustral or servce sector. It s dfferentated between the plans, hlly, and mountanous areas. In the years 2004 to 2006 comparable ncome on average amounted to CHF n the plans, CHF n the hlly and CHF n the mountanous area respectvely [1]. The work ncome per famly member n dary farms reached CHF n the plans (58% of comparable ncome), CHF n the hlly (54%) and CHF (51 %) n the mountanous area, respectvely. Actual workng hours are not taken nto account n ths comparson. Normally, they account for around 2000 hours per year n ndustry or the servce sector and 2800 hours n agrculture. The structural change n dary farms s moderate. Between the dary years 2000/01 and 2005/06 around 21 percent of all dary farms n Swtzerland stopped producton [2, p.127], whch represents a structural change of around 4 percent per year. Yet, dary producton n Swtzerland stll takes place under small structural condtons. On average, a dary farm has 20 hectares and 18 cows [1]. Gven the above-mentoned facts, t s unlkely that ncome s the only ncentve for dary farmers to stay n ther busness. More mportantly, there seem to be nonpecunary motves lke tradton, socoeconomc context and job preferences (workng n nature, workng wth anmals or beng ndependent) that affect the decson. In lterature several analyses about nonpecunary motves exsts. Egr [3] fnd dfferent patterns of preferences and nformaton behavour between organc and conventonal farmers n Canada. Comparng contract and ndependent producton forms, Key [4] shows that hog producers n the US have a strong preference for autonomy. Daves and Hodge [5] nvestgate the level of support by arable farmers for the prncple of cross complance for

2 2 bodversty objectves n a regon of the UK. They found that two atttudnal factors referred to as Stewardshp Orentaton and Technologcal Belefs are most mportant. Snce ncome s hghly mportant for agrcultural polcy, t s useful to translate nonpecunary ncentves n wllngness to pay. Ths s n the am of ths paper to carry out an analyss by the means of a Dscrete Choce experment. Compared wth other methods to measure wllngness to pay (e.g. Contngent Valuaton or Conjont Analyss), Dscrete Choce experments offer two advantages: Frst, they are suted for hypothetcal decsons. Second, several attrbutes of the object under consderaton, n our case the job of dary farmng, can be analysed. The Dscrete Choce method s frequently used n agrculture. Shefer et al. [6] for nstance, explore the adopton of varetes and fertlzaton technques of greenhouse tomatoes n Southern Israel usng Dscrete Choce Models. Wndle and Rolfe [7] use choce modellng to determne how sugar growers n Central Queensland (Australa) value dfferent attrbutes of dversfcaton. Breustedt et al. [8] examne the wllngness of German farmers to adopt genetcally modfed olseed rape by a Dscrete Choce experment. Ouma et al. [9] analyse cattle trats n Ethopa and Kenya by means of a Choce Experment. The paper s structured as follows. In the second secton the theoretcal base of Dscrete Choce experments s presented. Secton three deals wth the data used whle secton four contans the results. In the last secton, we draw conclusons. II. DISCRETE CHOICE EXPERIMENT Wth regard to ther professonal actvty ( alternatves), we assume that all dary farmers have a utlty functon consstng of two components (random utlty): U = + ε (1) V V s the systematc component, whle the random component s called ε. Out of a choce set dary farmers are asked to choose the best alternatve for them.e. the alternatve wth the hghest utlty level. In our case, there s just the status quo 0 and one alternatve, defnng a bnary decson model. The probablty that s chosen by the dary farmer s [10, chapter 4.1]: P ( ) Pr ( U U0 ) = Pr( V + ε V0 + ε0 ) Pr ( V V ε ε ) = (2) = 0 0 Assumng that ε = ε 0 ε the probablty can be expressed by the means of the densty functon of ε [10, chapter 4.2]: P ( ) = V V0 ( ) f ε dε (3) If a large number of observatons are avalable, the probablty can be reformulated [10, chapter 4.2]: V V0 β' ( x x ) P( ) = Φ = Φ 0 (4) σ σ Where Ф denotes the standardzed cumulatve normal dstrbuton. β s a vector of coeffcents and can be rescaled. Accordngly, usng a rescalng factor 1/σ for both numerator and denomnator, σ can be chosen to be equal to one. x and x 0 are vectors of k attrbutes of the alternatve and the status quo 0. Interested n the dfferences between the status quo and the alternatve, we ntroduce the change of attrbute k (A k ): A = x x (5) k k k 0 We assume a lnear specfcaton for the determnstc part of the ndrect utlty functon. In addton, we allow also quadratc form as well as nteracton terms of attrbutes: 2 V V0 = β 1 + β 2 * A2 + β3 *( A2 ) + β 4 * A4 + β ( ) (6) 5 * A 2 * A β k * Ak Gven the A k and the decson whether alternatve s chosen, the above equaton s econometrcally estmated by usng probt. Based on the utlty functon, the margnal rate of substtuton [MRS, 11] between the change of attrbute k (A k ) and the referrng ncome change (A Income ) s defned as follows:

3 3 MRS V A = V A k k, Income (7) Income Snce ncome s measured n monetary unts, the MRS s a fnancal ndcator of wllngness to pay or wllngness to accept [12]. III. SURVEY AND DATA On 1 st May 2009 Swtzerland wll abolsh mlk quotas. Snce the decson was taken n 2003 the dary farmer prepare ther farms to cope wth the new condtons. In order to analyse theses changes and the appled producton technology, we conducted a survey n the Eastern part of Swtzerland (Cantons Appenzell. Rh., Appenzell a. Rh., St. Gall, Thurgau and Zurch). Ths regon represents almost the dfferent levels of alttude as well as the szes of dary farms for the whole country. Chosen by a random samplng 530 dary farmers were asked about ther future plans by telephone survey. 123 of them refused to answer, whch corresponds to a rate of return of 77 percent. 407 dary farmers were asked whether they plan to contnue mlk producton after farmers ntend to stop producton. Snce the nterest for the survey was focussed on dary farmers, who want to stay n mlk producton, the analyss was stopped for them. The remanng 304 farmers were asked to fll out a questonnare, whch ncluded tems about change of mlk producton, producton technology and socoeconomc factors. After a few weeks, a researcher went to the farm to conduct also an oral ntervew. Besdes questons about producton technology and cooperaton wth other farmers the ntervew ncluded also a Dscrete Choce experment, whch was focussed on nonpecunary motves n ther daly work. The ntervews were carred out between August 2006 and March To analyse the preferences of work, we defne four attrbutes (table 1): Work content, terms of employment, holday per year and varaton n ncome. Attrbutes Work content Terms of employment Holday per year Varaton n ncome per year Table T 1 Attrbutes and Alternatves Alternatves Dary producton (status quo) Suckler cows husbandry plus addtonal occupaton Farmng wthout lvestock Out of agrculture Self-employed (status quo) Employed 0 week 2 weeks 4 weeks (status quo: 0.8 week) CHF CHF 0 (status quo) CHF CHF The work content ncludes four optons. All ntervewees are presently actve n dary producton (status quo) followed by the opton suckler cows husbandry plus an addtonal occupaton. Suckler cows are less labour-ntensve and therefore lower n ncome. As a consequence, an addtonal occupaton s necessary. Ths can be n or outsde agrculture. Farmng wthout lvestock means that there s a concentraton of arable crops, frut and vegetable growng n the plans and the hlly areas or fodder producton n the mountanous area. For the last opton, out of agrculture, t s necessary to leave the agrcultural sector and to start another job outsde agrculture. All dary farmers ncluded n the survey run a farm. Hence, they are self-employed (status quo). All work content optons are also possble to carry out as an employee of another farmer or enterprse. Holday offers three optons: none, two or four weeks. The status quo here s varyng between farms. Asked about ther actual amount of holdays the farmers answered between 0 and 4 weeks wth an average of 0.8 week. Accordngly, the dfference (A ) between the actual amount of holdays of the farmer and the number of weeks of holday n the alternatve s calculated ndvdually. The varaton n ncome refers to the actual ncome, whch was not drectly nqured. The ntervewees were asked to select an ncome class out of fve possbltes. On average the ncome of the household s CHF whch refers to 1,5 full tme famly member on the farm (CHF per full tme

4 4 famly member). Snce ths fgure ncludes also ncome, whch s earned outsde agrculture, t cannot be compared wth the referrng values n secton one of ths paper. Based on table 1, 96 (= 4*2*3*4) combnatons are possble theoretcally. Some of whch are not realstc or unlkely to occur. For example, four weeks of holday beng standard for employees n Swtzerland, t s not possble to state none or 2 weeks f employed. The respectve combnatons need to be excluded whch leads fnally to 55 possble combnatons. Snce all combnatons are used n the survey, a restrcton n terms of an orthogonal desgn s not necessary. The combnatons are subdvded nto 5 groups wth 11 alternatves each. Smlar combnatons are assgned to dfferent groups. A card s prepared for each combnaton. In the ntervew wth the dary farmer, the status quo n terms of holday s dscussed frst, and then the 11 cards are used. The sequence of the cards s changed n every ntervew. The farmer decdes whether or not to accept the card n each case. To accept a card means that the combnaton of attrbutes on the card mples a hgher utlty than status quo. The procedure was evaluated n a pretest to guarantee that dary farmers had no problems to magne what the alternatve meant. In the survey they easly understood the questons. Wth one excepton, all 304 dary farmers followed the Dscrete Choce experment. A data set of 3333 answers resulted of the survey (303 farms wth 11 answers each). Out of the presented eleven cards they have chosen between 0 and farmers have selected no alternatve. In total, 904 or 27% of the presented alternatves were chosen. Due to the fact that the specfc precondtons for the logt analyss are not gven, the probt model s used for the econometrc estmaton of equaton 6. The bnary varable to explan s the decson about the alternatve (accepted/not accepted). The attrbutes, some of them also n quadratc form, and nteracton between attrbutes are used as explanatory varables. Therefore, the four optons for work content are transferred nto three bnary varables, whereas the dary producton (status quo) s omtted. The terms of employment are treated smlarly (employed = 1, selfemployed = 0). For ncome (CHF) and holday (weeks) contnuous varables are appled. For the estmaton process we start wth all varables. Varables wthout nfluence are dentfed by the lkelhood rato test and are omtted. Alternatvely we apply the AIC-procedure, whch leads to the same result. IV. RESULTS Table 2 shows the probt model. To test the explanatory power we compare the model wth a reduced verson. The latter comprses no varables (only ntercept). Usng the lkelhood rato test, the null hypothess (no sgnfcant explanatory wth all varables used) s rejected on the 0.1 percent level. Varable Table T 2 Probt Model Coeffcent Z Value Pr(> z ) Odds Rato Intercept Income 4.51E < Income square -8.67E < Suckler cow < Wthout lvestock < Out of agrculture < Employed < Holday < Holday square < Income*Employed -8.78E Income* Out of agrculture -8.94E Wthout lvestock* < Employed Out of agrculture* Employed < Out of agrculture* Holday Log Lkelhood: -1602; df = 14, n = 3333 Wth the excepton that ncludes the ntercept as well as two of the nteracton terms the coeffcents of all varables are hghly sgnfcant. Snce the coeffcents of logstcs regresson are not meanngful, we present the odds ratos [relaton of probablty to accept to probablty not to accept = p/(1-p)]. Income has a mnmal but hghly sgnfcant nfluence on the decson. If the coeffcent s

5 5 multpled by 1000, whch means an ncome ncrease of CHF , odds rato s ncreasng towards 1,05. Accordngly, addtonal ncome supports the decson to choose an alternatve. The odds ratos for the four varables SUCKLER COWS husbandry, farmng WITHOUT LIVESTOCK, OUT OF AGRICULTURE and EMPLOYED are rather low. A decson towards an alternatve, whch comprses one of them, s unlkely. Fnally, the odds rato for an addtonal week of holday s n favour to choose an alternatve. Based on the coeffcents of table 2 the margnal rate of substtuton resp. the wllngness to pay/accept s calculated for the status quo (table 3). Therefore, the frst dervatves are necessary. Table T 3 Margnal wllngness to pay/accept at the status quo Varable CHF Suckler cow Wthout lvestock Out of agrculture Employed Holday The sgns are as expected. Due to the fact that the coeffcent for ncome s rather small, the amounts are hgh. A dary farmer requres an addtonal ncome per year of CHF or CHF per month to swtch to SUCKLER COWS husbandry. Ths value reaches between 70 and 90 percent of the work ncome per famly member reported n secton one. The result for farmng WITHOUT LIVESTOCK s slghtly lower, whch ndcates that both alternatves SUCKLER COW husbandry and farmng WITHOUT LIVESTOCK are comparable for dary farmers. To work outsde agrculture needs a compensaton, whch s around 20 percent hgher than SUCKLER COW. To be EMPLOYED nstead of self-employment (status quo) requres an amount of CHF For an addtonal week of holday, dary farmers show a wllngness to pay of CHF Ths value s far above the monthly ncome. beyond the quota abolshment n A Dscrete Choce experment s carred out, whch leads to dstnct results. For dary farmers ncome plays a mnor role. Hghly mportant s the work content. For all three alternatve work contents (SUCKLER COW husbandry, farmng WITHOUT LIVESTOCK and OUT OF AGRICULTURE) a compensaton of at least CHF per year s necessary, whch s more than 60 percent of ncome per famly member n dary producton. As well known n lterature the wllngness to accept has a tendency to be overestmated [13]. Even under consderaton of ths aspect, there s an enormous preference to stay n dary producton. If we compare the wllngness to pay for the two alternatves SUCKLER COW husbandry and farmng WITHOUT LIVESTOCK we have to conclude, that cows wthout the producton of mlk (SUCKLER COWS) s not a real opton for a dary farmer. The shown preferences lead to three further conclusons: Frst, there s evdence that dary farmer n Swtzerland have nonpecunary motves. Second, the moderate structural change of dary farms n the past and the small structural condtons today can be explaned. To stop dary farmng and to fnd mmedate job wth an addtonal ncome of CHF 30'000.- s rather unlkely. To stay n the sector s the consequence. Fnally, an agrcultural polcy program n order to motvate dary farmers to stop mlk producton s lkely to fal, snce the necessary annual compensaton s rather hgh. From a methodologcal pont, an extenson should be made n future. A more detaled specfcaton towards a random effects model wll be carred out n order to consder farm specfc effects. Furthermore, for several subgroups (regon, age or educaton) the analyss wll be conducted out separately. V. CONCLUSIONS The paper analyzes the preferences of dary farmers wth respect to ther work, who ntend to produce mlk

6 6 ACKNOWLEDGMENT The authors would lke to thank Harry Telser for hs comments and suggeston as well as Robert Meer for assstance wth the data management. REFERENCES 1. Mühlethaler, K., Zentrale Auswertung von Buchhaltungsdaten Hauptbercht 2006, Forschungsanstalt Agroscope Reckenholz-Tänkon, Tänkon. 2. BLW, Agrarbercht 2007 des Bundesamtes für Landwrtschaft, Bern. 3. Egr, C., Atttudes, Backgrounds and Informaton Preferences of Canadan Organc and Conventonal Farmers: Implcatons for Organc Farmng Advocacy and Extenson, Journal of Sustanable Agrculture, 13(3): Key, N., How much do farmers value ther ndependence? Agrcultural Economcs 33: Daves, B. and I. Hodge, Farmers Preferences for New Envronmental Polcy Instruments: Determnng the Acceptablty of Cross Complance for Bodversty Benefts, Journal of Agrcultural Economcs, 57(3): Shefer, D., M. Cohen and S. Bekhor, Modelng adopton of nnovatons n agrculture usng dscrete choce models, European Regonal Scence Assocaton conference papers ersa04p Wndle, J. and J. Rolfe, Dversfcaton Choces n Agrculture: A Choce Modellng Case Study of Sugarcane Growers. Australan Journal of Agrcultural and Resource Economcs, 49(1): Breustedt G., J. Müller-Scheessel and H. M. Meyer-Schatz, Unter welchen Umständen würden deutsche Landwrte gentechnsch veränderten Raps anbauen? En Dscrete-Choce- Experment, Agrarwrtschaft 56(7): Ouma E., A. Abdula and A. Drucker, Measurng Heterogeneous Preferences for Cattle Trats among Cattle-keepng households n East Afrca, Amercan Journal of Agrcultural Economcs, 89(4): Ben-Akva M. and S. R. Lerman, Dscrete Choce Analyss Theory and Applcaton to Travel Demand, MIT Press, Cambrdge. 11. Varan, H Mcroeconomcs Analyss, thrd edton, Norton, New York. 12. Louvere J., D. Hensher and J. Swat, Stated Choce Methods, Analyss and Applcatons, Cambrdge Unversty Press, Cambrdge. 13. Horowtz, J. K., and K. E. McConnell, A revew of WTA/WTP studes, Journal of Envronmental Economcs and Management, 44: Author: Insttute: Street: Cty: Country: Emal: Markus Lps and Chrstan Gazzarn Agroscope Reckenholz-Tänkon Research Staton ART Tänkon CH-8356 Ettenhausen Swtzerland markus.lps@art.admn.ch