Explaining Recent Firm Growth in Dutch Horticulture

Abstract

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.

Econometric modelling of heterogeneity and structural changes in Dutch horticulture

“…The recent increases in scale in Dutch horticulture are irrevocably accompanied by a high debt burden for individual firms. The average size of primary producers has almost doubled in the period 2008-2015, with also the emergence of a number of fastgrowing mega-firms (Los et al, 2019). Moreover, the dependence on external capital is high, given the capital intensity of the sector, with e.g.…”