Region marginalization in agriculture, seasonality, dedicated capital, and product development with reference to North Europe dairy sector

Abstract

Agricultural production is becoming more similar to manufacturing in routinization of processes, the extent to which raw materials are processed, capital intensity, and emphasis on throughput. Modern dairying exhibits all of these trends. Some ascribe the changes to demand side factors, while others look to technological innovations. Emphasizing cost seasonality as a reference indicator for nature’s role in agricultural production, this paper develops a simple model that includes both supply and demand sides. We show how cost seasonality can enhance region competitivity when consumers demand storable produce at a low price. But cost seasonality can impede endeavors to meet consumer demand for higher-value produce that require use-dedicated capital. This is because technical change embodied in a use-dedicated investment is biased toward firms that produce non-seasonally. Since agricultural produce is costly to transport, processing is local and high profit regions with comparatively strong seasonal cost advantages produce comparatively low value products. If a region with strong seasonal cost advantages has a non-seasonal cost disadvantage, then an increase in demand for processing can reduce the region’s welfare. We argue that this may have been a factor in determining comparative performances of dairy sectors across maritime Northern Europe over the past 150 years.