Evaluating the double effect of land fragmentation on technology choice and dairy farm productivity: A latent class model approach

• We test different effects of land fragmentation on extensive and intensive farms.
• The impact of land fragmentation is significantly larger on extensive farms.
• Land fragmentation diminishes the probability of using extensive production processes.
• Land consolidation processes allow most of intensive farms transform to extensive.

Land fragmentation affects dairy farming through its influence on foodstuff production. As its impact on extensive farms (which use a large land area per cow) is expected to be larger than on intensive farms, land fragmentation could also constitute an obstacle to adopting an extensive production technology. Given that extensive farming is being encouraged by direct payments from the Common Agricultural Policy to protect the environment and preserve rural heritage, land fragmentation may reduce the effectiveness of this rural development aid. We provide an empirical application using a sample of Spanish dairy farms located in a region where land is highly fragmented. Using a stochastic frontier latent class model, we find a significantly larger impact of land fragmentation on the productivity of extensive farms compared to intensive ones. Moreover, land fragmentation significantly reduces the probability of using extensive production processes. Our simulation analyses shows that a reduction in the number of plots similar to that already achieved by previous land consolidation processes in the region would improve the variable profits of extensive farms by 16% compared to 6% for intensive farms. Additionally, up to 84% of intensive farms would switch to extensive production processes.