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Nutrient Management Regulation and Farm Level Profitability: the Case of Ontario Dairy Farms

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Title: Nutrient Management Regulation and Farm Level Profitability: the Case of Ontario Dairy Farms
Author: Xie, Xin
Department: Department of Food, Agricultural and Resource Economics
Program: Food, Agriculture and Resource Economics
Advisor: Hailu, GetuDeaton, Brady
Abstract: The purpose of this study is to estimate the effect of Ontario’s Nutrient Management Act (NMA) on farm level profitability of dairy sector. NMA came into force in 2003 and sets standards for the storage and handling of nutrients for regulating farms that fit certain criteria to reduce the risk of nutrients entering surface water or groundwater, especially for farms with herd size that can produce Nutrient Units above a certain level (i.e. 300 Nutrient Units). While the Act may affect its regulated farms by incorporating additional compliance costs, it may not have the same effect on unregulated farms. Increase in the weighted-average production costs of all farms may lead to elevated milk price within a national cost of production (COP) pricing formula for dairy industry. A theoretical framework that describes the pathway by which farms’ economic performance can be affected by NMA is developed in this study. To empirically test whether NMA has effect on farm level profitability, a RE model is estimated by using the unbalanced panel data from Ontario Dairy Farm Accounting Project (ODFAP) from year 2000 to 2010. The empirical results of this study indicate that NMA may not have statistically significant effect on the profitability of regulated farms with no less than 300 Nutrient Units (NUs). A discussion is further developed to take into consideration factors that may affect this empirical results.
Date: 2012-06
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