Dutch dairy farmers used different investment strategies in their production capacity in the periods around the abolishment of the European Union milk quota. Some farmers anticipated and expanded their production, others waited till expected policies were implemented or did not change their production. We develop a theoretical framework that integrates investment strategies—anticipating, waiting, or not investing—in the presence of policy uncertainty. We provide a numerical illustration of the framework to a typical Dutch dairy farm considering to expand the milk production. Results show that farmers would anticipate when they expect that the right system will be implemented with delay and will have low financial consequences. A low risk aversion reinforces the adoption of the anticipation strategy. The implications for policy and practice are discussed [EconLit Citatons: D22, Q00, Q18].

An important but understudied factor influencing strategic decisions of farmers is policy uncertainty. Increased policy uncertainty may expedite the timing of investments in expansion, a phenomenon that has been observed in the Dutch dairy sector in recent years. Using a participatory Bayesian network, we aimed to identify and assess the farm, farmer, and environmental characteristics that explain and predict investment strategies. The variable policy uncertainty is modeled as a multidimensional concept that is a function of objective and subjective variables. We found that the most important variables influencing investment timing are succession, risk attitude, perceived policy uncertainty, and earning capacity. The insights derived from this study are useful for policy advisors, finance providers, farm advisors, and also farmers themselves to enhance their understanding of why and when farm investments are likely to occur despite the high level of policy uncertainty. [EconLit Citations: Q180 Agricultural Policy; Food Policy; Animal Welfare Policy G410 Behavioral Finance: Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets].