Microdata: a critical source for policy evaluation

The FLINT project (Farm Level Indicators for New Topics in policy evaluation) was aimed at testing the feasibility of collecting data on the sustainability performance of farms through the European Farm Accountancy Data Network (FADN). The project defined a list of sustainability themes based on an assessment of policy needs, the existing literature and a review of national initiatives to measure sustainability. Data were collected in nine Member States (Finland, France, Germany, Greece, Hungary, Ireland, the Netherlands, Poland and Spain) from 1,100 farms of different types. Although some problems were encountered, mainly due to the initial pilot project character of FLINT, we conclude that data collection is feasible, whatever the way a Member State has organised its data collection for FADN. The FLINT project has investigated options for upscaling the results from 9 to 28 Member States to create a representative panel with farm‐level sustainability data. This leads to the conclusion that the most attractive option is to reduce the current FADN sample in order to provide the sustainability data that are urgently needed for improved policy evaluation. This could be done without sacrificing information on other important indicators, such as income from farming.     

Testing Symmetry and Homogeneity in the Almost Ideal Demand System with Co‐integrated Data using Fully Modified Estimation and the Bootstrap

Conventional seemingly unrelated estimation of the almost ideal demand system is shown to lead to small sample bias and distortions in the size of a Wald test for symmetry and homogeneity when the data are co‐integrated. A fully modified estimator is developed in an attempt to remedy these problems. It is shown that this estimator reduces the small sample bias but fails to eliminate the size distortion. Bootstrapping is shown to be ineffective as a method of removing small sample bias in both the conventional and fully modified estimators. Bootstrapping is effective, however, as a method of removing size distortion and performs equally well in this respect with both estimators.     

Complying with greening practices in the new CAP direct payments: An application on Italian specialized arable farms

The main novelty of the most recent Common Agricultural Policy reform is the greening, which provides a payment to farmers who respect certain ‘agricultural practices beneficial for the climate and the environment’. The greening is part of a framework that includes other changes to the first pillar.In the present study the possible impact of first pillar reform on a Farm Accountancy Data Network (FADN) sample of Italian farms was carried out using a Positive Mathematical Programming model. This model considers the mechanisms of production choices according to compliance with the greening practices, as well as possible administrative penalties or reductions in payments in the case of non-compliance.Results showed that while the impact of the greening practices is limited in terms of land use, there were positive effects on environmental indicators. Coupled payments, along with greening practices, determine a larger impact and are effective in achieving environmental goals. Moreover, the system for reducing green payments and levying administrative penalties in case of non-compliance is effective and ensures compliance with practices in almost all farms.     

A revised Tobit procedure for mitigating bias in the presence of non-zero censoring with an application to milk-market participation in the Ethiopian highlands

Fixed transactions costs that prohibit exchange engender bias in supply analysis due to censoring of the sample observations. The associated bias in conventional regression procedures applied to censored data and the construction of robust methods for mitigating bias have been preoccupations of applied economists since Tobin [Econometrica 26 (1958) 24]. This literature assumes that the true point of censoring in the data is zero and, when this is not the case, imparts a bias to parameter estimates of the censored regression model. We conjecture that this bias can be significant; affirm this from experiments; and suggest techniques for mitigating this bias using Bayesian procedures. The bias-mitigating procedures are based on modifications of the key step that facilitates Bayesian estimation of the censored regression model; are easy to implement; work well in both small and large samples; and lead to significantly improved inference in the censored regression model. These findings are important in light of the widespread use of the zero-censored Tobit regression and we investigate their consequences using data on milk-market participation in the Ethiopian highlands.     

Assessing the Impact of Direct Payments Convergence on Farm Income Inequality: The Case of Italian Farms

Abstract

This paper investigates the effects of the convergence process of direct payments (DPs) on farm income inequality. The analysis uses the Gini coefficient concept and its decomposition on the FADN Italian sample in 2014 and 2019 to assess the impact of the DPs reform in Italy. Results of the analysis show that a marginal increase in direct payments will reduce income concentration. However, a shift of resources toward mountain areas could occur. The results of the analysis have some policy implications regarding the application of the convergence mechanism of the CAP in Italy: in fact, the convergence process leads to a redistribution of resources in favour of mountain areas. These results could feed the debate on the future of CAP direct payments after 2020, when the cut or, at least, the reduction of DPs could increase income concentration.     

Geographical downscaling of outputs provided by an economic farm model calibrated at the regional level

There is a strong need for accurate and spatially referenced information regarding policy making and model linkage. This need has been expressed by land users, and policy and decision makers in order to estimate both spatially and locally the impacts of European policy (like the Common Agricultural Policy) and/or global changes on farm-groups. These entities are defined according to variables such as altitude, economic size and type of farming (referring to land uses). European farm-groups are provided through the Farm Accountancy Data Network (FADN) as statistical information delivered at regional level. The aim of the study is to map locally farm-group probabilities within each region. The mapping of the farm-groups is done in two steps: (1) by mapping locally the co-variables associated to the farm-groups, i.e. altitude and land uses; (2) by using regional FADN data as a priori knowledge for transforming land uses and altitude information into farm-groups location probabilities within each region. The downscaling process focuses on the land use mapping since land use data are originally point information located every 18 km. Interpolation of land use data is done at 100 m by using co-variables like land cover, altitude, climate and soil data which are continuous layers usually provided at fine resolution. Once the farm-groups are mapped, European Policy and global changes scenarios are run through an agro-economic model for assessing environmental impacts locally.     

Effects of management information from FADN on profitability of Dutch potted-plant firms

The Dutch Farm Accountancy Data Network (FADN) provides managerial reports to participants of the network. This article analyzes the impact of this type of management information on the profitability of agricultural producers. A dual system of input demand and output supply equations is applied to measure the effect of management information. The approach is applied to a panel data set of Dutch potted‐plant firms over the period of 1975–1995. Management information provided by the FADN resulted in savings in materials and services and a more intensive use of energy. Shadow prices of structure, machinery, and labor increased as a result of management information. The results show that management information is more likely to have a positive effect on profitability of potted‐plant firms in the long run than in the short run. The results suggest that the availability of management information allows firms to operate on a larger scale in the long run.     

The factors influencing the profitability of leased land on dairy farms in Ireland

The Republic of Ireland possesses a land market that is constrained by minimal sales each year, less than 1%. In an effort to capitalise on milk quota abolition and to increase dairy production, a suite of tax incentives has recently been introduced in the Republic of Ireland to encourage land mobility and long-term leasing among Irish dairy farmers. Using Irish Farm Accountancy Database Network (FADN) data from 2011–2017 to examine this, a Heckman sample selection model explores two aspects; (i) the factors that influence a farmer’s decision to rent, or continue renting, land and (ii) the profitability of dairy farmers renting in land. We find self-selection into the rental market is driven by farm traits that include a high level of hired labour, the presence of a successor, intensive farming practices and dairy discussion group membership. The results show that rental agreements assist farms in achieving economies of scale. The findings provide evidence to support government intervention such as tax incentives for renting out land and knowledge sharing discussion groups.     

The Capitalisation of CAP Payments into Land Rental Prices: A Panel Sample Selection Approach

The empirical literature suggests that farmland prices and rents capitalise agricultural subsidies and that the 2003 reform of the EU Common Agricultural Policy, which decoupled subsidies from production and attached them to land, may have increased the extent of the phenomenon. Employing a farm‐level dataset, the Farm Accountancy Data Network (FADN) for Italy, we investigate this issue while accounting for selectivity, endogeneity and unobserved individual heterogeneity. To understand the impact of the reform we compare the estimates of capitalisation rate for decoupled payments with those for coupled payments. After correcting for unobserved individual heterogeneity and selectivity, our results reveal no capitalisation of coupled payments and only limited capitalisation of decoupled area payments into farmland rents in Italy.     

Effect of Experimental Design on Choice-Based Conjoint Valuation Estimates

In this article, we investigate the effect of several commonly used experimental designs on willingness-to-pay in a Monte Carlo environment where true utility parameters are known. All experimental designs considered in this study generated unbiased valuation estimates. However, random designs or designs that explicitly incorporated attribute interactions generated more precise valuation estimates than main effects only designs. A key result of our analysis is that a large sample size can substitute for a poor experimental design. Overall, our results indicate that certain steps can be taken to achieve a manageably sized experimental design without sacrificing the credibility of welfare estimates.     

The growth of family farms in Hungary

The article investigates the validity of Gibrat's Law for Hungarian family farms using FADN data collected between 2001 and 2007. Gibrat's Law states that the growth rate of firms will be independent of their initial size. Regression results allow us to reject Gibrat's Law for all quantiles. Evidence suggests that smaller farms tend to grow faster than larger ones. Results do not support the hypothesis of “disappearing middle” in Hungarian agriculture. We study a number of socio‐economic factors that can help to explain farm growth. We find that total subsidies received by a farm and the farm operator's age are the most significant factors correlated with farm growth.     

Cap towards 2020 and the cost of political choices: The case of Emilia-romagna region

The paper assesses the different schemes of regionalisation and greening implementation according to both the preliminary proposals presented to the Trilogue and the CAP Reform adopted on 16 December 2013. The objective is to compare the different potential impacts on production (land use) and on the economic revenue of farm holders in the Emilia-Romagna region (Italy). The assessment is performed by a regional positive mathematical programming (PMP) model and is carried out for single farms appearing in the Farm Accountancy Data Network (FADN) data. Sampling weights are used to make the simulation results consistent with the production structure of the region. The findings confirm a big weakening in what would have been the impact of the Commission’s proposal. In terms of lower gross margin incurred by farmers for fulfilling the greening requirements in the final CAP scenario, the model estimates a reduction corresponding to 20 €/ha. The greatest economic effects of the new CAP appear to be mainly due to the redistribution of direct payments.     

CAP Subsidies and Productivity of the EU Farms

The paper investigates the impact of the Common Agricultural Policy (CAP) subsidies on farm total factor productivity (TFP) in the European Union (EU). We employ a structural semi‐parametric estimation algorithm directly incorporating the effect of subsidies into a model of unobserved productivity. We empirically study the effects using the Farm Accountancy Data Network (FADN) samples for the EU‐15 countries. Our main findings are clear: subsidies impact negatively on farm productivity in the period before the decoupling reform was implemented; after decoupling the effect of subsidies on productivity is more nuanced and in several countries it turned positive.     

The heterogeneous farm‐level impact of the 2005 CAP‐first pillar reform: A multivalued treatment effect estimation

This article aims to evaluate the impact of the 2005 reform of the Common Agricultural Policy (CAP) on farm production choices as a treatment effect (TE). This impact is measured through alternative metrics of the short‐term changes of the output vector. The heterogeneity of the response to the reform is assessed by estimating both average and quantile TE. As this heterogeneous response may depend on the different farm‐level CAP support, a multivalued treatment approach is adopted and applied to treated units (i.e., supported farms). This approach is applied to a balanced panel of Italian FADN farms observed over years 2003–2007. Results show that the 2005 reform of the first pillar of the CAP actually had an impact in (re)orienting short‐term farm production choices but this response is largely heterogeneous and concentrated in the lower levels of support.     

Issues relating to Agricultural Pricing Policies and their Analysis in Developing Countries

Agricultural pricing policies in developing countries are often the result of complex interactions between producer, consumer and merchant groups and their relative effectiveness in influencing government decision making. Even within governments, various ministries often have opposing views. In this environment one of the contributions a policy analyst can make is to attempt to quantify the effects of different policy options. This permits a more informed discussion which hopefully leads to better decision-making and an improved incentive environment. Many analyses of agricultural pricing policies have used the standard partial equilibrium analysis where no linkages between commodity markets were considered. In this paper we have considered cross-price effects. Also, we have discussed issues relating to other adjustments/refinements of the standard method so that a practitioner not familiar with the various methods can form an opinion of what the options are and what adjustments may be appropriate for a particular case in question. The adjustments relate to overvaluation of currencies, input price distortions, differences in the degree of distortions between producers and consumers, and variability of border prices. The inclusion of cross-price elasticities was important for assessing production, consumption and trade effects for Argentina, but for the other countries it resulted in only somewhat improved accuracy. The adjustment for exchange rates had a large impact in Egypt and was important for other countries as well. This underlines the importance of exchange rates as key variables for agricultural pricing policies in general. The numbers show that the traditional taxation policies of agricultural products in the sample of developing countries is somewhat less widespread than in the past. These policies, however, continue to favor consumers over producers, with significant losses for some of the latter. The large size of welfare losses, especially compared to efficiency losses, highlights the importance of correcting distorted prices that adversely affect the poorest sections of society. Also, the usual government objective of taxing producers to raise revenues is frequently defeated by the large subsidies provided to consumers. For the partitioner, for whom time is often of the essence, the assessment of welfare effects using the partial equilibrium method may provide reasonably good ‘first cut’ estimates of the order of magnitude of the impact of distortions. But often, these 'base case estimates' can and should be adjusted for a number of possible factors. The analyst needs to determine how important accurate estimates of key variables are to the policy makers; he or she then needs to compare the costs involved in generating or gathering the data and doing the calculations with the benefits of a broader and more accurate analysis of the distortionary effects of the particular case in question.     

Relationships between Technical Efficiency and Financial Management for Czech Republic Farms

This paper provides the first analysis of the relationship between farm financial structure and technical efficiency in Central and Eastern European farming during the transition to a market economy. First, technical efficiency scores for a sample of Czech farms are computed with data envelopment analysis, accounting for sampling variability by using the Simar and Wilson bootstrapping procedure. The confidence intervals show that corporate livestock farms are the most homogenous in terms of technical efficiency. Second, a Tobit model is applied for the investigation of factors, including financial considerations, which influence the variation in technical efficiency. The potential endogeneity of the financial variables in the explanation of efficiency is examined, following Smith and Blundell. The Amemiya estimator is used for those cases which are revealed as endogenous. The analysis indicates substantial differences in the way in which the different management structures are treated by lenders. De novo, individual farms are subject to stringent evaluation of their loan applications, which is not the case for the successors of the former collective and state farms.     

Assessing the Impacts of Pillar 1 and 2 Subsidies on TFP in French Crop Farms

This article analyses the impact of common agricultural policy (CAP) subsidies on total factor productivity using a FADN dataset of French crop farms between 1996 and 2003. We first estimate a production function using a system GMM approach and then recover farm‐level total factor productivity (TFP). Further, the impact of Pillar 1 and 2 subsidies on TFP is investigated and results show that several subsidies have a negative impact on productivity during the period covered in the dataset. CAP reforms have also had an impact on the relationship between subsidies and productivity.     

Revisiting the relationship between land price and parcel size in agriculture

Hedonic land price models often use parcel size as an explanatory variable. Empirical analyses, however, are rather ambiguous regarding the direction and the size of the effect of this variable on farmland values. The objective of this paper is to investigate this size–price relation for agricultural land use in detail and to derive recommendations for an appropriate specification of hedonic land price models. Our analysis consists of three steps. First, we conduct a meta-analysis based on a comprehensive literature review. Second, we analyze a dataset of more than 80,000 agricultural land transactions in Saxony-Anhalt, Germany, using the nonparametric locally weighted scatterplot smoothing (LOWESS) estimator. This unconditional smoothing algorithm identifies negative size–price relations for very small and large plots, whereas it finds a positive relation for medium plots. We use this finding in our third step, a hedonic land price model, in which the size–price relation is modeled conditional on land and buyer characteristics. From these steps, we conclude that the complex relationship between land price and plot size cannot be captured by a simple functional form since it is affected by several economic factors, such as economies of size, transaction costs, and financial constraints.     

Pricing Organic Nitrogen Under The Weak Disposability Assumption: An Application to the French Pig Sector

The nonparametric approach Data Envelopment Analysis is used in order to measure individual technical inefficiency. Different models are evaluated using a 1991 FADN data set of French pig farms. Organic nitrogen is considered as a byproduct of animal breeding. Used as plant nutrient, organic manure becomes an input in crop production which is pollutant when excessive amounts enter surface and groundwater. In the latter case, the usual hypothesis of strong disposability of organic nitrogen is refuted because the elimination of pollution is costly. In this paper, we introduce a hypothesis of weak disposability of organic nitrogen and compare the technical efficiency measures obtained with and without this assumption. Then, using the duality between the restricted cost function and the input-output distance function and following Färe and Primont (1995), we derive a shadow price of organic nitrogen which can be compared to the unit cost of different existing manure treatments.     

Impact of CAP Subsidies on Technical Efficiency of Crop Farms in Germany,the Netherlands and Sweden

This paper analyses the impacts of CAP reforms, particularly subsidies on technical efficiency of crop farms. An output distance function is employed and estimated together with an inefficiency effects model to capture the effects of CAP subsidies and farmer characteristics on farm efficiency. The model is applied to FADN data (period 1995–2004) of crop farms in Germany, the Netherlands and Sweden. The study shows that the 10‐year average technical efficiency is 64% in Germany, 76% in the Netherlands and 71% in Sweden. The average annual changes in technical efficiency are 0.1%, 0.4% and 2.3%, respectively. The share of crop subsidies in total subsidies has a negative impact on technical efficiency in Germany but a positive impact in Sweden, although insignificant in the Netherlands. The share of total subsidies in total farm revenues has negative impacts on technical efficiency in all three countries, consistent with income and insurance effects. Positive (negative) change in technical efficiency is mainly attributable to farm size (degree of specialisation) in Germany, and degree of specialisation (degree of subsidy dependence) in the Netherlands and Sweden.