Effects of subsidies in Russian dairy farming

This study develops a microeconometric model of specialized dairy farms in the Moscow region using panel data over the period 1995-2001. The model is used to analyze the role of subsidies on profit as well as input and output allocation. Theoretical conditions for short-term profit maximization are not rejected by the data. Differences between farms allow for a fixed-effect specification. The dairy producers in the region demonstrate a low responsiveness to market signals, but technology change becomes important. Labor, land, and livestock had low shadow prices. Although subsidies have a distorting effect on the input-output mix, this study shows they relieve the credit constraints on dairy farms and have an important positive influence on farm profit. Copyright 2005 International Association of Agricultural Economics.