Modelling the adoption of automatic milking systems in Noord-Holland

Innovation and new technology adoption represent two central elements for the enterprise and industry development process in agriculture. The objective of this paper is to develop a dynamic farm-household model able to simulate the adoption of Automatic Milking Systems (AMS) by dairy farms when the adoption decision is affected by uncertainty with regard to future conditions (labour costs, milk prices and policy regulations). The model simulates the decision to replace a traditional milking system with AMS using a Real Options (RO) approach that allows farms to choose the optimal timing of investments. RO is particularly suitable when the innovation is irreversible and uncertain. Preliminary results show that the adoption of AMS is very much affected by policy uncertainy and by market conditions. The effect of such uncertainty is to postpone the decision to adopt the new technology until farmers have gathered enough information to reduce the risk associated with an innovation subject to lock-in effects