Reducing the usage of fossil fuels is a central issue in ongoing policy debates. This in particular holds for Dutch horticulture, given its energy-intensive production. We analyse differences in energy usage and price responsiveness of horticultural firms by estimating energy demand functions using a Bayesian random coefficient model. Beyond, the effects of a proposed energy tax are assessed. Allowing for firm-specific energy price coefficients gives a better model fit compared to conventional models with fixed slope parameters. This confirms that firms respond differently to energy prices, which is taken into account in simulating the effects of more restrictive energy policies. The results show that larger-sized firms use less gas per square meter yet also point at a considerable spread in additional energy expenses between firms.

Summary Dutch horticultural firms have expanded rapidly in recent decades, both in terms of their production area as well as in number of employees. In particular in the production of fresh fruits and vegetables, a number of very large horticultural firms emerged with often more than 100 employees, operating on tens of hectares of greenhouses. A standard explanation for firm growth is that firms want to benefit from economies of scale, where the increased scale of production would ensure lower average (fixed) production costs. This article however shows that cost reduction due to economies of scale is not the main driver behind the growth in horticultural firm size. In fact, our empirical evaluation shows that larger horticultural firms face higher average production costs compared to smaller firms. However, these higher production costs are compensated by the on average higher and more stable output prices obtained by larger firms. This positive effect of firm size on firm revenues therefore provides a different rationale for the recent growth in average size of Dutch horticultural firms. As a result, our findings demonstrate that revenue‐related aspects are becoming more important in understanding firm growth of primary producers in the horticultural sector.

Recent empirical literature pays increasing attention to farmer‐retail power relations in agricultural supply chains, yet seems to neglect potential differences between prices that primary producers receive for their products. Via both a Markov chain analysis and a hybrid panel data model, we empirically test whether primary producers receive prices in a consistent way and what explains any price differences. Using a unique data set containing individual farm‐specific output prices in various horticultural markets, we show substantial price dispersion across farms and reveal relations between farm characteristics and observed output prices. The Markov analysis shows that the same farms are constantly found in the higher and lower quartiles of the price distribution, implying prices are not distributed randomly. The results of the hybrid panel data model show that characteristics as farm size and production orientation are strongly associated with differences in the obtained output prices as well as the price/cost ratio between farms. [EconLit Citations: D22, D40, L11, Q13].

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