Productivity and Convergence in European Agriculture

We investigate relative productivity levels and decompose productivity change for European agriculture between 2004 and 2013. Specifically (i) we contribute to the debate on whether agricultural Total Factor Productivity (TFP) has declined or not in the European Union (EU); (ii) we compare the relative TFP level across EU Member States and investigate the difference between ‘old’ Member States (OMS, i.e. the EU‐15) and ‘new’ Member States (NMS); and (iii) we test whether TFP is converging or not among Member States. The empirical analysis applies an aggregate quantity framework to country‐level panel data from the Economic Accounts for Agriculture for 23 EU Member States. The results imply that TFP has slightly decreased in the EU over the analysed period; however there are significant differences between the OMS and NMS and across Member States. Finally, our estimates suggest that productivity is generally converging over this period, albeit slowly.     

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.     

Farm Type Effects of an EU‐wide Direct Payment Harmonisation

In this study, we analyse how three scenarios involving different levels of harmonisation of common agricultural policy (CAP) decoupled payments in the EU affect the distribution of farm income across regions and farm types. We use the farm type extension of the common agricultural policy impact (CAPRI) model, which captures farm heterogeneity across the EU. The first scenario (NUTS1) assumes uniform per‐hectare payments at the NUTS1 level. The second scenario (MS‐CONV) equalises the per‐hectare rates inside each Member State (MS) and partially harmonises the single payment scheme (SPS) across MS in line with the 2011 Commission proposal. The third scenario simulates a uniform per‐hectare payment at the EU level. Depending on the implementation of the SPS, the NUTS1 flat rate induces a substantial redistribution of payments across farm types and NUTS2 regions, particularly in regions that apply the historical SPS. The MS‐CONV and EU flat‐rate schemes have more significant impacts at the EU‐wide level. In the EU‐15, almost all farms lose payments from MS‐CONV and EU‐wide flat rates, whereas in the EU‐10, almost all farm types gain from these scenarios. Our conservative estimates indicate that the flat‐rate payments could redistribute up to €8.5 billion. Lower land rental costs partially offset the losses of farm income in the EU‐15 from payment redistribution. Land rents drop for all flat‐rate scenarios across most sectors and farm sizes in the EU‐15. In the less productive new MS, the landowners’ rental income is largely unaffected by the introduction of the flat rate.     

CAP Reform: Prospects for crop markets in the Enlarged EU: Reform der GAP: Aussichten für die Märkten von Feldfrüchten in der erweiterten EU: La rëforme de la PAC: I'avenir des marchés agricoles dans I'Europe élargie

CAP Reform: Prospects for crop markets in the Enlarged EU Agricultural Policy Modelling in the EU has become more complicated due to the recent CAP reform and EU Enlargement. Under the AGMEMOD (Agricultural Member States Modelling) Partnership, teams of economists with specialist knowledge of agriculture in their own countries have come together to build the AGMEMOD model. The model can be used to analyse the impact of policy reform at a country level in EU member states and at an aggregate EU level. The model covers a wide variety of agricultural commodities, but this article focuses specifically on the impact of the policy reform on the cereals sector. Results are presented for the EU15 in aggregate, the New Member States (NMS), Bulgaria and Romania. The implication of EU Enlargement is also examined for the accession countries. For the EU15, results suggest that there would be a modest reduction in grain production and a slightly larger reduction in oilseeds production by 2010, as a response to the decoupling of cereal payments. Results for the NMS suggest that their accession will bring some modest growth in grains production by 2010, This result is not greatly different from that which might have been achieved had these countries remained outside the EU. The recent reforms limit the extent to which the CAP stimulates increased production in the NMS. La réforme de la PAC: l'avenir des marches agricoles dans l'Europe élargie Avec l'elargissement et la recente reforme de la PAC, modeliser la politique agricole europeenne devient de plus en plus difficile. C'est pour cela que plusieurs Cquipes d'kconomistes ‐ chacune selectionnee sur la base de ses connaissances accumulees sur l'agriculture de son propre pays ‐ se sont associees pour construire le modele AGMEMOD, dans le cadre du partenariat MAEM (Modelisation Agricole des Etats Membres). Ce modkle est utilisable pour analyser l'impact des reformes de la politique agricole, tant au niveau de l'Europe entiere qu'i celui de chacun des Etats membres. Il couvre une vaste variete de produits agricoles, mme si le present article met I'accent sur les cereales. k s resultats sont prksentes pour les agrigats ‘Europe a 15’, ‘NMS’ (nouveaux ktats membres), Bulgarie et Roumanie. On examine aussi, ici, les implications de I'elargissement de I'Union pour les nouveaux membres. Pour 1'Europe a 15, a la suite du dkcouplage des aides cerealieres, les resultats conduisent i envisager a I'horizon 2010 une modeste reduction de la production de cereales et une reduction un peu plus forte de la production dolkagineux. Dans le mCme temps, les NMS devraient connaitre un faible accroissement de leur production de cereales. Ceci n'est pas fondamentalement different de ce qui serait arrive si ces pays etaient restes en dehors de 1'Europe. Dans les NMS, les reformes recentes ont pour effet de brider les accroissements de production auxquels I'application de la PAC aurait permis de s'attendre. Reform der GAP: Aussichten für die Märkte von Feldfruchten in der erweiterten EU Die Modellierung von Agrarpolitiken in der EU gestaltet sich auf Grund der kurzlich durchgefiihrten Reform der GAP und der EU‐Erweiterung zunehmend schwieriger. Im Rahmen der AGMEMOD (Agricultural Member States Modelling, Agrarmodellierung von Mitgliedstaaten)‐Partnerschaft haben sich Okonomen zusammengefunden, die im Hinblick auf die Landwirtschaft in ihren Heimatlandern uber Fachkenntnisse verfiigen, um das AGMEMOD‐Modell zu erarbeiten. Mit Hilfe dieses Modells konnen die Auswirkungen der Politikreformen sowohl auf Ebene der EU‐Mitgliedstaaten als auch auf aggregierter EU‐Ebene analysiert werden. Das Modell deckt eine groRe Anzahl von landwirtschaftlichen Produkten ab; dieser Artikel behandelt jedoch insbesondere die Auswirkungen der Politikreformen auf dem Getreidesektor. Die Ergebnisse werden fiir die aggregierte EU‐15, die neuen Mitgliedstaaten (NMS) sowie fiir Bulgarien und Rumanien dargestellt. Die Auswirkungen der ELI‐Erweiterung werden ebenfalls ftir die Beitrittslander untersucht. Im Fall der EU‐15 zeigen die Ergebnisse einen geingen Ruckgang bei der Getreideproduktion und einen etwas hoheren Ruckgang bei der Olsaatenproduktion bis zum Jahr 2010 als Folge der Entkopplung der Getreidezahlungen. Die Ergebnisse fiir die NMS deuten darauf hin, dass sich ein geringes Wachstum der Getreideproduktion bis zum Jahr 2010 ergeben wird. Dieses Ergebnis unterscheidet sich nicht wesentlich von einem Szenarium, in welchem diese Lander der EU nicht beigetreten waren. Die kurzlich durchgefiihrten Reformen begrenzen die produktionssteigernde Wirkung der GAP in den NMS.     

Country‐Specific Determinants of Horizontal and Vertical Intra‐industry Agri‐food Trade: The Case of the EU New Member States

Intra‐industry trade (IIT) has become a widespread phenomenon with a growing role in international trade, though agricultural trade is usually neglected in empirical works. This article identifies the determinants of horizontal and vertical intra‐industry agri‐food trade between New Member States (NMS) and the EU‐27 in 1999–2010, by applying static and dynamic models with different specifications to panel data. Results show that IIT is mainly of a vertical nature in the NMS, though the majority of NMS export low quality agri‐food products to EU‐27 markets. Factor endowments are negatively related to agri‐food horizontal intra‐industry trade (HIIT), but positively to vertical intra‐industry trade (VIIT). Economic size is positively and significantly related to both types of IIT, while distance and IIT are found to be negatively related in both cases. Results also suggest that HIIT and VIIT are greater if a New Member State exports agri‐food products to another NMS while EU accession has had positive and significant impacts on both HIIT and VIIT, suggesting that economic integration fosters IIT.     

Subsidies and agricultural productivity in the EU

This paper investigates the relationship between EU agricultural subsidies and agricultural labor productivity growth by estimating a conditional convergence growth model. We use more representative subsidy indicators and a wider coverage (panel data from 213 EU regions over the period 2004–2014) than have been used before. We find that, on average, EU's Common Agricultural Policy (CAP) subsidies increase agricultural labor productivity growth, but this aggregate effect hides important heterogeneity of effects of different types of subsidies. The positive effect on productivity comes from decoupled subsidies, that is, Pillar I decoupled payments and some Pillar II payments. Coupled Pillar I subsidies have the opposite effect: they slow down productivity growth.     

Catching Up or Falling Behind in European Agriculture: The Case of Milk Production

The paper explores and analyses the catching up and falling behind processes in the European dairy sector over the period 2004–2011, using a stochastic metafrontier multiple output distance function for 24 EU Member States. The metafrontier estimates reveal considerable productivity differences in milk production across the EU at the regional (NUTS‐2) level. Milk yield per cow is the highest in the old Member States, especially in those regions located in the northwest of the EU, while the lowest productivity is observed in Eastern Europe. The same structure was found for both the TFP (Total Factor Productivity) levels and TFP growth. Moreover, the results for technical change suggest that farm sizes are not optimal in many regions in Central and Eastern Europe from a dynamic perspective. The comparative analysis suggests that in the new compared to the old Member States, fewer farms could benefit from the movement of the frontier. Moreover, there are no signs that poorly performing farms are catching up with the best performing farms in the EU regions/countries.     

How Decoupled are Decoupled Payments? The Evidence from Ireland

This article explores the production effects of the EU's system of decoupled payments and the implications for WTO negotiations. We compare survey data on Irish farmers' production plans post decoupling to the optimal outputs predicted by a farm-level profit maximisation model. The results show that, post decoupling, a significant number of farmers plan to use their decoupled payments to continue or expand economically non-viable production. An econometric analysis reveals that the decision to maintain or expand production levels post decoupling is not significantly influenced by current or future projected profitability levels. The analysis suggests likely widespread cross subsidisation of unprofitable production post decoupling but that aggregate production is still likely to decline relative to the traditional coupled, but production-limiting, blue box payments. If the EU wants to claim in the current WTO negotiations that decoupled payments amount to green box support, then the argument must be made that the payments have no, or at most minimal, trade distorting effects or effects on production. If it becomes apparent to members of the WTO that European farmers are using their decoupled income to subsidise market loss production, then the green boxing of the EU's decoupled payment scheme may come up for debate at the negotiations.     

Ex Ante Impact Assessment under Imperfect Information: Biotechnology in New Member States of the EU

Some argue that the lack of modern agricultural development in the former socialist countries of Central and Eastern Europe has made cutting‐edge biotechnology attractive. However, enthusiasm for planting genetically modified (GM) crops varies greatly in the enlarged European Union (EU) and especially among the New Member States (NMS); the Czech GM maize area is progressively growing whereas Hungary imposed a de facto ban on GM crops. Remarkably, the Hungarian ban was not supported by any cost–benefit assessment. In the literature, ex ante impact assessments of monopolistically priced technologies are often based on cross‐sectional comparisons of average cropping budgets. Such assessments ignore heterogeneity of farmers and underestimate the true impact of these technologies because of homogeneity bias. Therefore, we propose an improved method by explicitly modelling farmer heterogeneity under imperfect information, and assess the potential value and benefit sharing of GM crops in the two NMS using a stochastic partial equilibrium model. The total potential value of GM crops is estimated at €82 million for both countries, of which €60 million (73%) accrues to farmers and €22 million (27%) to the gene developers and the seed industry. This is in line with the literature on global benefit sharing of first‐generation GM technologies.     

Drivers of vertical intra‐industry trade: the case of the Hungarian agri‐food sector

This article investigates the drivers of vertical intra‐industry trade (VIIT) in Hungarian agri‐food trade with the European Union (EU). It identifies three possible ways to measure intra‐industry trade (IIT) flows (GHM, FF, and N methods) and defines six hypotheses to test for the drivers of VIIT with three panel data models (static, dynamic, and FEVD). The results suggest that factor endowments are negatively, while economic size is positively and significantly related to VIIT. Distance and VIIT were found to be negatively related as is commonly the case in the standard gravity model. It was also found that VIIT is greater if a New Member State (NMS) is exporting agri‐food produce to an NMS, while EU accession has ambiguously influenced the share of VIIT. In general, it seems that our results are independent from model estimations and interestingly they do not differ considerably as we a priori expected. Moreover, our results seem surprisingly robust across various measurements of ITT.     

Brexit and Tariff Rate Quotas on EU Imports: A Complex Problem

Tariff rate quotas (TRQ s) are a means by which non‐EU suppliers of agri‐food products can be given preferential access to EU markets within a regulated framework of quotas at tariff rates below the Most Favoured Nation rates bound in the GATT . TRQ s are common in governing trade in the meat and dairy sectors of the EU , although they apply to a wide range of other agricultural commodity and processed agri‐food products. Brexit poses a complex set of problems regarding TRQ s in terms of how the respective parties should divide up jointly undertaken commitments within the WTO , since TRQ s have been negotiated by the Commission on behalf of all EU Member States. Whilst individual quota allocations can be allocated to specific third country suppliers, individual Member States receive no specific allocation of the global product TRQ either in total, or from any named preferential supplier. The article outlines the nature of TRQ s in the meat and dairy sectors of the EU , and how a simple partitioning of existing quotas between the EU ‐27 and the UK is unlikely to resolve the complex issue of access rights of third countries to both markets. Possible solutions are explored, including the potential need for reciprocal EU ‐27–UK TRQ s post Brexit.     

A Quantile Regression Analysis of the Effect of Farmers’ Attitudes and Perceptions on Market Participation

The objective of this study is to investigate the subjective determinants of farmers’ participation in output markets in five EU New Member States (NMS) characterised by large semi‐subsistence sectors. It employs quantile regression to model market participation reflecting the heterogeneity amongst farmers. The study also uses the Bayesian adaptive lasso to simultaneously select important covariates and estimate the corresponding quantile regression models. The empirical results show that only two variables affect all quantiles, while their effect varies across quantiles. Some of the remaining variables affect the share of output sold at the lower quantiles (i.e. for subsistence‐ and semi‐subsistence‐oriented farmers) only, whereas other variables are only significant at the upper quantiles (i.e. for more commercially oriented farms). Advisory services, and particularly agricultural business advice, and information and advice on markets and prices can facilitate the market participation of subsistence‐oriented farms.     

Land Market Imperfections and Agricultural Policy Impacts in the New EU Member States: A Partial Equilibrium Analysis

This article analyses how transaction costs and imperfect competition in the land market affect the welfare effects of agricultural subsidies in the new Eastern Member States of the European Union. Benefits of land subsidies end up with landowners in new Eastern Member States also with imperfections in the new Eastern Member States land markets. With unequal access to subsidies, small tenant farmers may even lose out from the subsidies. Decoupling of payments shifts policy rents to farmers, but constrains productivity-enhancing restructuring. Using reserve entitlements to mitigate this effect reduces the intended benefits on distortions and target efficiency.     

The Effects of Direct Payments on Technical Efficiency of Irish Beef Farms: A Stochastic Frontier Analysis

The 2003 Mid‐Term Review of the CAP sought to refocus the EU's farm support policy to foster a more competitive and market‐orientated agricultural sector. The foundation of this reform comprised the introduction of decoupled payments to farmers, replacing the EU's previous system of supports that were directly linked to production of designated crops and livestock. This paper explores the effect of coupled payments and their subsequent replacement by decoupled support, on the technical efficiency of specialist beef farms in Ireland. Given the high reliance of beef farmers in Ireland on CAP payments, the decoupling of payments has been especially important for the sector. A stochastic production frontier is estimated using a panel dataset comprising detailed accountancy data for Irish beef farms between the years 2000 and 2013. Our results indicate that technical efficiency in the beef farming sector has been consistently poor, with an average efficiency score of only 0.53 during the period analysed. However, we found that direct income received in the form of coupled payments had a positive impact on farm efficiency, and that this positive effect was maintained after their replacement with decoupled income support.     

Is Passive Farming A Problem for Agriculture in the EU?

We address a new agricultural policy concern following the decoupling of CAP direct payments in 2005: passive farming, whereby landowners maintain their agricultural area to collect payments without producing commodities. It is claimed that passive farming is hindering agricultural development by ‘blocking’ access to farmland for expanding farmers. We evaluate the links between the EU's Single Payment Scheme (SPS), passive farming, land use and agricultural development. Following identification of the rational landowners’ optimal land‐use choice, we evaluate the effects of the SPS using a spatial, agent‐based model that simulates farmers’ competition for land in a case‐study region of Sweden. We show that passive farming does not constrain land from being used in production; on the contrary more land is used than would be the case without the SPS. We conclude that passive farming is not a problem for agriculture, but provides public goods that would otherwise be under provided: preservation of marginal farmland and future food security. However SPS payments on highly productive land inflate land values (capitalisation) and slow structural change, which hinder agricultural development. Consequently CAP goals could be better served by targeting payments on marginal land and phasing out payments to highly productive land.     

The impact of decoupled payments on U.S. cropland values

An extensive literature has shown that various farm programs may influence the value of farmland, but other studies have not examined the cropland price effects of direct, or decoupled, payments separate from countercyclical payments. This study uses nationally representative confidential field‐level panel data with farmer‐reported per‐acre land values. We analyze the impact of decoupled and other farm program payments on farmland values. Using a fixed effects model and controlling for various factors that influence farmland values, we find that an additional dollar of decoupled payments has a large and statistically significant impact on farmland values of about $18 per acre. These results are comparable with similar studies undertaken in Europe.     

Measuring the Trade Restrictiveness of Domestic Support using the EU Common Agricultural Policy as an Example

We develop an index that measures the overall trade effects of domestic support payments. Our index is based on the Mercantilist Trade Restrictiveness Index (MTRI) and is capable of analysing the development of the trade restrictiveness of domestic support payments over time and across countries. It facilitates the evaluation of agricultural policy reforms introducing changes in the composition of domestic support payments. We conduct this analysis with a computable general equilibrium model that is extended to depict detailed agricultural policies using the Common Agricultural Policy of the European Union (EU) as an example. For the representation of agricultural policies, we updated the underlying database by incorporating detailed EU domestic support payments taken from the OECD Producer Support Estimate (PSE) tables and reconcile PSE data with the WTO classification scheme. Our index confirms a decrease in trade distortion stemming from the implementation of decoupled support in the EU. In addition, the trade-equivalent protection rate shows that the trade restrictiveness of domestic support payments depends on the assumptions made with regard to the degree of decoupling of those payments.     

Do EU direct payments to beef producers belong in the ‘blue box’?

In the Uruguay Round Agreement on Agriculture, so-called 'blue box' support measures were exempted from reduction commitments, provided they were delivered under 'production-limiting' programs. Although classified as 'blue box', the EU system of direct payments (DP) to beef farmers imposes 'claim-limiting' restrictions rather than 'production-limiting' restrictions, allowing farmers to keep additional animals over and above the number upon which they are eligible to claim DP. The present paper provides empirical evidence that EU direct payments capitalise into the market prices of male calves and young steers in Ireland. It is also likely that DP capitalises into the prices of beef cows and heifers. Given this capitalisation process, some farmers can obtain 'capitalised' DP on animals produced over and above the 'claim-limiting' restrictions, by selling these animals through auction markets. Thus, 'capitalised' DP probably encourages production over and above the limiting measures.     

No Terroir in the Cold? A Note on the Geography of Geographical Indications

Geographical Indications (GIs) are increasingly important instruments of agricultural and food regulations and are growing as contentious issues in trade negotiations and disputes. GIs can improve welfare but they can also be a protectionist instrument. The EU has the most GIs in the world, but they are concentrated in the south of the EU. Even excluding wine, there are seven times more food GIs per capita in the southern EU Member States than in other EU Member States. This note discusses several factors which may explain the geographic concentration of GIs in the south of the EU.