Perceived environmental uncertainty in Dutch dairy farming: The effect of external farm context on strategic choice

This paper explores the way in which dairy farmers perceive their environment (PE), i.e., the external context of their farm, and the uncertainty (PEU) this poses to them. The environment is defined using the STEP concept (society, technology, economy and politics) and Porter’s five forces model. The relationship between the perception of the external farm environment and the strategy farmers choose for their farm is quantified to gain insight into the effect of the external farm environment on decision-making. Data from a survey of 103 Dutch dairy farmers was analyzed using regression analysis. The results indicate that environmental uncertainty is not related to complexity or dynamism, but to the illiberality (i.e., intolerance, hostility) of the external farm environment. The institutional environment is considered especially illiberal, thus causing high uncertainty. Farmers with high PEU are more likely to choose a diversification strategy, while low perceived uncertainty results in a process-control strategy for the farm. A growth strategy is not affected by perceived environmental uncertainty. The PE and PEU approach is new in agricultural research and shows that the farmer’s view on the external environment is a key issue for decision-making on farms The significant relationship between the perceived uncertainty caused by the external farm environment and farm strategies shows that to get a good understanding of the farm, farming system boundaries should be expanded to incorporate the effect of the external farm environment on decision making. Reduction of uncertainty will enhance decision-making because instead of farming within an uncertain context, risk management practices can be used.