Econometric modelling of heterogeneity and structural changes in Dutch horticulture

Evert Jan Los

Research output: Thesisinternal PhD, WU


With a large degree of heterogeneity in firm structures, a strong emphasis on product differentiation and a growing importance of vertical integration, the Dutch horticultural sector can be seen as a modern agricultural market par excellence. This thesis examines how primary producers in Dutch glasshouse horticulture respond heterogeneously to changes in their market, institutional and financial environment.

This is executed by modelling heterogeneity in firm-specific outcomes, responses and conditions using various micro-econometric techniques. The empirical analysis builds, as explained in chapter 2, on firm-specific production data obtained from the ATR database provided by Rabobank. This database contains information of yearly financial statements of individual horticultural firms. The advantage of using such data compared to traditionally sampled data mainly resides in the greater availability of firm-level data. This is particularly beneficial in the case of heterogeneous sectors, in which individual producers are likely to deviate strongly from average trends.

In chapter 3, specific attention is paid to the heterogeneity in firm structure by assessing the drivers behind firm growth. Specifically in Dutch horticulture, primary producers have rapidly increased in scale in the last decade. The results show that cost reductions due to economies of scale are not the main driver behind the growth in horticultural firm size. However, larger firms do obtain on average higher and more stable output prices obtained. This positive effect of firm size on firm revenues therefore provides a different rationale for the recent growth in average size of Dutch horticultural firms.

In an attempt to assess the heterogeneity in market positioning between firms, chapter 4 investigated differences in output prices between firms. Research on agricultural production often implicitly assumes that producers are price-takers and hence obtain homogeneous prices. However, given recent developments in product differentiation and vertical integration, a growing dispersion in output prices is observed. The results in chapter 4 show that the same firms are able to obtain high output prices over time. Moreover, larger firms are structurally able to obtain higher output prices. This finding also holds after correcting for potential price differences due to differences in production costs.

Chapter 5 in contrast not focused on heterogeneity in outcomes, but rather on heterogeneous responses at firm-level. Given the high usage of natural gas in horticultural production, a recent policy proposal is to raise taxation on natural gas. We assess whether firms respond differently to these price incentives, by allowing for firm-specific responses. The findings in this chapter point out that assuming homogeneous responses (through applying classical fixed slope parameters) leads to an underestimation of variability. Furthermore, larger firms are found to use on average less gas per square meter in their production.

In chapter 6, the relation between the financial environment and the primary producer is studied. It specifically focuses on the heterogeneity in credit constraints for understanding investment behaviour at firm level. In light of recent developments on financial markets, these credit constraints become increasingly important and hence contradict with the idea of perfect capital markets with unlimited availability of capital. Consequently, liquidity indicators and the actual cashflow of a firm are expected to become more important for understanding investment behaviour. The panel Tobit model estimated in chapter 6 however shows no clear effect of the level of liquidity parameters such as cashflow on actual investments, yet it does provide evidence that over time these liquidity indicators become more important in determining the investments at firm-level. Moreover, the results show that firms with a high operating value are more likely to invest. This indicates a growing divergence between smaller and larger growing firms within these sectors.

Chapter 7 evaluated the impact of capital structures on firm performance. In order to achieve this objective, efficiency scores are obtained via a DEA-procedure. In the second stage of the analysis, these scores are regressed on indicators for the capital structure of a firm. The results suggest the importance of non-monotonicity and non-linearity in the relation between debt and performance. Highly indebted firms are often underperforming, whereas no or only modest effects are found for the original debt term. These findings are robust to various estimation methods in the second stage of the analysis and also hold in various subsamples of specialized producers. Beyond, the obtained DEA efficiency score shows high correlation with other measures of profitability and productivity, pointing at the consistency of our efficiency estimates for understanding firm performance.

Lastly, chapter 8 provides a synthesis of these results as well as a discussion of the usage of firm-level data in light of new advancements in the collection of data in agricultural production. Furthermore, policy implications are discussed and it provides a critical reflection on the work that was done in this thesis. The last section provides avenues for further research. It stresses the importance of future research to reduce the underestimation of variability in order to get better insight into the complex and firm-specific behaviour of primary producers in modern agricultural markets.

Original languageEnglish
QualificationDoctor of Philosophy
Awarding Institution
  • Wageningen University
  • Gardebroek, Koos, Promotor
  • Huirne, R.B.M., Promotor
Award date10 Mar 2021
Place of PublicationWageningen
Print ISBNs9789463956031
Publication statusPublished - 2021


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