Assessment of economic effects of innovations in automatic milking systems in Podlaskie region (Poland) with the use of real option approach

In the dairy sector of the Podlaskie region, the leader in milk production and processing in Poland, strong concentration processes are observed. Enlargement of herds of dairy cows in a number of farms increases farmers’ interest in adoption of innovative, automatic milking systems (AMS). In this paper, the profitability of different timing of investment implementation in milking robots was assessed, focusing on the dairy farm types dominating in the region. The model implemented is based on a real option approach that includes investment irreversibility and stochasticity in direct payment rate, milk and labour prices. The analysis shows that delaying investment in AMS under conditions of reformed CAP would be a better strategy as compared to investments in the first year of modelling period. However the benefit form postponing decision on investment decreases with increasing farm size and input of hired labour.