Understanding spatial interactions and structural change in the dairy production chain with a dynamic regional Agent Based Model covering dairy farms and dairy processing

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The two central hypotheses to be investigated in this research project is that (1) farm structural change in the German dairy sector is the outcome of the interaction between processes at the farm and processing level and that (2) an improved understanding of these processes can be reached by the application of Agent Based Modelling (ABM), which allows to explicitly depict spatial interactions. The objective is to understand the complex dynamic interaction between structural change at farm level and raw milk processing stage, and the resulting consequences for land use, agricultural supply, the economy and the environment, by conducting simulations for different regions with a spatially explicit ABM. That ABM will explicitly cover the farm and processing level of raw milk, which goes beyond the current state-of-the-art. In order to integrate the behavior of a complex dynamic Mathematical Programming model for different types of farms in the ABM, a meta-modeling approach will be applied.The specific objectives of this project and the related tasks are the following: (1) to develop a methodology to derive appropriate meta-models, reflecting different planning horizons, from a complex farm model and apply it to the parameterization of farm agents in the ABM, (2) to develop a behavioral model for dairies including investment decisions that describes spatial competition in raw milk markets, (3) to develop other key modules in the ABM such as a farm exit, farmland rental or dairy processing capacity adjustment module, (4) to integrate the results from objectives 1 - 3 into a dynamic ABM and (5) to improve understanding, based on systematic scenario applications of the ABM, how different structural starting conditions and different behavioral assumption impact structural change at farm and processing level.Given the integration of the farm and processing level in one ABM, this offers unique and innovative insights into determinants and interaction effects of structural change. The dairy sector is well suited for this analysis as there is this nearly perfect linkage between production and processing as only very little milk is sold directly at farm level. The expected outcomes are of relevance for the dairy farm sector and the dairy production chain as dairy production is an economically important part of the agricultural and food business. The medium- to long-term international competitiveness of the German dairy companies depends on the functioning and cost-efficient input sourcing. For the farm sectors, the regional structural change in the dairy sector has important implicit repercussions for regional land markets and landscapes.