["Journal of Agricultural Economics, EarlyView. ", "\nABSTRACT\nChanges towards more sustainable livestock production are often evaluated in terms of whether farms abandon environmentally harmful practices. Less attention has been paid to how farms reallocate production across alternative grazing systems and how the composition of production evolves over time. This paper addresses this question by modelling grazing systems as compositional outcomes and examining how financial, institutional and structural factors shape the distribution of livestock across alternative regimes. We use farm level data from the 2007 and 2022 agricultural censuses in Mexico, covering more than 860,000 cattle farms and estimate a fractional multinomial logit model. Financial and institutional support is associated with economically meaningful reductions in free grazing. However, most of this adjustment occurs through confinement rather than controlled grazing. Heterogeneity analysis reveals that small and dairy farms allocate a larger share of production to confinement systems, whereas large and beef‐dairy farms allocate relatively more to controlled grazing. The results indicate that sustainability outcomes depend on how policy instruments interact with farm scale, production orientation and land constraints.\n"]