Econometric study of the internal variables affecting the growth of dairy farms in Zona da Mata, State of Minas Gerais, Brazil

The primary concern of this PhD thesis is to analyse the growth of dairy farms based on internal and individual characteristics of each farm. Data from the region of Vicosa in Minas Gerais (Brazil) were used to investigate the growth of dairy farms during the period 1986-92. The proposed theoretical model attempts to overcome the limitations underlying the neoclassical theory of the firm (Viner-Marshall) when dealing with firm growth studies. It incorporates human capital, adjustment costs and asset fixity in the same model of growth. The derivated empirical model relates dairy farms growth to several variables associated with human capital, adjustment costs and asset fixity. The most suitable specification is by means of econometric tests, one of them, (Godfrey and Wickens) being modified according to the needs of the current study. The long linear specification was the more appropriated one. The variables with significant and positive effect in the growth were: experience of producers, access to agricultural extension and proportion of land reserved to pasture. Experience and agricultural extension contribute to increase efficiency of resources allocation and to reduce adjustments costs associated to investment. The positive influence of the land reserved to pasture confirms the importance of land availability in the growth of traditional dairy farms in the region. The variables inducing a significant and negative effect in the growth were: age of producers, initial herd size, initial amount of fixed capital and productivity. Some explanations for these results are the following: high average age of the producers is associated with his declining skills as a manual labourer; negative influence of initial herd size means that Gibrat's law is not supported in this study; higher amount of initial fixed capital induces higher average costs and consequently reduces income and profits decreasing the amount of resources available to farm growth; replacement of higher yielding cows implies greater adjustment costs in the expansion of the farm. Based on the obtained results, the author debates some major issues regarding the policies to be implemented by the Brazilian dairy sector.