Sustainable Development and Collective Learning: Theory and a European Case Study. Bruges European Economic Policy (BEEP) Briefing 7/2004

Network governance of collective learning processes is an essential approach to sustainable development. The first section of the article briefly refers to recent theories about both market and government failures that express scepticism about the way framework conditions for market actors are set. For this reason, the development of networks for collective learning processes seems advantageous if new solutions are to be developed in policy areas concerned with long-term changes and a stepwise internalisation of externalities. With regard to corporate actors’ interests, the article shows recent insights from theories about the knowledge-based firm, where the creation of new knowledge is based on the absorption of societal views. This concept shifts the focus towards knowledge generation as an essential element in the evolution of sustainable markets. This involves at the same time the development of new policies. In this context innovation-inducing regulation is suggested and discussed. The evolution of the Swedish, German and Dutch wind turbine industries are analysed based on the approach of governance put forward in this article. We conclude that these coevolutionary mechanisms may take for granted some of the stabilising and orientating functions previously exercised by basic regulatory activities of the state. In this context, the main function of the governments is to facilitate learning processes that depart from the government functions suggested by welfare economics.

Land Markets in the EU Candidate Countries of Croatia, Former Yugoslav Republic of Macedonia and Turkey. Factor Markets Working Paper No. 1, September 2011

The paper provides an overview and a comparison of land markets covering the three candidate countries for European Union membership: Croatia, the Former Yugoslav Republic (FYR) of Macedonia and Turkey. It analyses and compares agricultural land structures and factors driving land markets, based on the available cross-section and time-series evidence on agricultural land structures and land productivity (yields). The land productivity measured by production per hectare of agricultural land varies between the three countries. Agricultural land structures are the result of historical evolution in land markets and land-leasing developments with additional different institutional environments and agrarian and land reforms.

Productivity and Credit Constraints: Firm-Level Evidence from Propensity Score Matching. Factor Markets Working Paper No. 3, September 2011

Drawing on a unique, farm-level panel dataset with 37,409 observations and employing a matching estimator, this paper analyses how farm access to credit affects farm input allocation and farm efficiency in the Central and Eastern European transition countries. We find that farms are asymmetrically credit constrained with respect to inputs. Farm use of variable inputs and capital investment increases up to 2.3% and 29%, respectively, per €1,000 of additional credit. Our estimates also suggest that farm access to credit increases total factor productivity up to 1.9% per €1,000 of additional credit, indicating that an improvement in access to credit results in an adjustment in the relative input intensities on farms. This finding is further supported by a negative effect of better access to credit on labour, suggesting that these two are substitutes. Interestingly, farms are found not to be credit constrained with respect to land.

Farm-level Capital: Capital positions, structures, the dynamics of farm-level investments, capital accumulation and leverage positions. Factor Markets Working Paper No. 7, October 2011

This Factor Markets Working Paper describes and highlights the key issues of farm capital structures, the dynamics of investments and accumulation of farm capital, and the financial leverage and borrowing rates on farms in selected European countries. Data collected from the Farm Account Data Network (FADN) suggest that the European farming sector uses quite different farm business strategies, capabilities to generate capital revenues, and segmented agricultural loan market regimes. Such diverse business strategies have substantial, and perhaps more substantial than expected, implications for the financial leverage and performance of farms. Different countries adopt different approaches to evaluating agricultural assets, or the agricultural asset markets simply differ substantially depending on the country in question. This has implications for most of the financial indicators. In those countries that have seen rapidly increasing asset prices at the margin, which were revised accordingly in the accounting systems for the whole stock of assets, firm values increased significantly, even though the firms had been disinvesting. If there is an asset price bubble and it bursts, there may be serious knock-on effects for some countries.

Agricultural and Rural Capital Markets in the EU Candidate Countries: Croatia, the Former Yugoslav Republic of Macedonia and Turkey. Factor Markets Working Paper No. 8, October 2011

This paper analyses agricultural and rural capital factor markets in the three European Union candidate countries: Croatia, the Former Yugoslav Republic (FYR) of Macedonia and Turkey. Aggregate capital market indicators and their dynamics, and factors driving agricultural and rural capital markets are analysed and compared in these countries. In general, agricultural and rural capital markets show similarities with general capital market developments, but agricultural and rural capital markets are facing specific credit constraints related to agricultural assets and rural fixed asset specificities, which constrain their mortgages and collateral use. Credit market imperfections have limited access to the investment credits necessary for the restructuring of small-scale individual farms. Government transfers are used to differing extents in the candidate countries, but generally tend to increase over time. Remittances and donor funds have also played an important role in agricultural and rural economy investments.

Key Issues and Developments in Farmland Sales Markets in the EU Member States and Candidate Countries. Factor Markets Working Paper No. 12, February 2012

This paper describes recent developments in sales markets of agricultural land in selected member states of the European Union and its candidate countries. Analysis focuses on the importance of the sales market for agricultural land, the average size of transacted plots, and the evolution and magnitude of the land sales prices. The share of agricultural land sold on the market is relatively stable in most of the old member states, with the exception of Finland, the Netherlands and the UK, where a more dynamic market is observed. For the new member states, the sales market for agricultural land is strongly affected by public sales under the ongoing land privatisation programmes, while strong variation prevails in the private sales market. Substantial differences are also observed in both the average size of the transacted plots and the sales prices. For the latter, price regulations partially explain the heterogeneity in the evolution of sales prices.

Key Issues in Agricultural Labour Markets: A Review of Major Studies and Project Reports on Agriculture and Rural Labour Markets. Factor Markets Working Paper No. 20, February 2012

This paper provides a synthesis of the empirical literature on the key issues in agricultural and rural labour markets since 1960s, drawing mainly upon studies from the United States and the European Union, but also including relevant material from developing countries. The contribution of this meta-analysis lies in its unique structure as it covers the main research questions which have been addressed in the literature and includes the most cited papers from the American Journal of Agricultural Economics, Journal of Agricultural Economics, European Review of Agricultural Economics, Agricultural Economics as well as other reports and EU funded projects. Each research question is accompanied by tabular summaries which classify the individual studies according to the methodology and the variables employed. The heterogeneous conditions across countries, the different research questions and methodologies, and the type of data employed, have sometimes led to conflicting results. Nonetheless, by comparing the results it is possible to assess the significance and the direction of the determinants of rural labour allocation and its adjustments, and thus contribute to a better understanding on the functioning of rural labour markets. Lastly, by recognising the importance of the institutional framework, the paper provides useful policy insights.

Labour Supply Curves for EU Member and Candidate States: An applied general equilibrium analysis. Factor Markets Working Paper No. 26, June 2012

This paper introduces a more sophisticated modelling of the labour market functioning of the European member and candidate states through the introduction of labour supply curves in an applied general equilibrium model. A labour supply curve offers a middle way in labour supply modelling, sitting between the two commonly adopted extremes of spare capacity and full employment. The first part of the paper outlines the theoretical foundation of the labour supply curve. Real world data is then used to derive labour supply curves for each member state, along with Croatia and Turkey. Finally, the impact of the newly specified labour markets on the results of an illustrative scenario involving reform of the common agricultural policy is explored. The results of computable general equilibrium analysis with the labour supply curve confirm the theoretical expectation that modelling the labour supply through an upwards-sloping curve produces results that lie between the extremes of spare capacity of the labour factor and fully employed labour. This specification captures a greater degree of heterogeneity in the labour markets of the member and candidate states, allowing for a more nuanced modelling of the effects of policy reform, including welfare effects.

Simulation of Land Use and Investment Behaviour under Different Policy Scenarios: Results of the extended farm/household model. Factor Markets Working Paper No. 27, July 2012

Factor markets are a central issue in analyses of farm development and of agricultural sector vitality. Among the different production factors, land is one of the most studied. Several studies seek to estimate the effect of government policy payments on land value or land rental prices. The studies mostly agree that government payments and other types of policy support are significant in explaining land prices and account for a large share of them. In October 2011, the European Commission published a new policy proposal for the common agricultural policy (CAP) up to 2020. The proposed regulation includes a shift from historical to regional payments. The objective of this paper is to provide an ex ante analysis of the impact of the new CAP policy instruments on the land market. In particular, the effect of the regionalisation of payments in Italy is examined. The analysis is based on the use of a mathematical programming model to simulate the changes in land demand for a farm in Emilia Romagna. The results highlight the relevance of the new policy mechanism in determining a change in land demand. Yet the effect is highly dependent on initial ownership of entitlements under the historical payment scheme.

Drivers of agricultural capital productivity in selected EU member states. Factor Markets Working Paper No. 30, September 2012

The aim of this Working Paper is to provide an empirical analysis of the marginal return on working capital and fixed capital in agriculture, based on data gathered by the Farm Accountancy Data Network from seven EU member states. Particular emphasis is placed on the detection of credit market imperfections. The key idea is to provide farm group-specific estimates of the shadow price of capital, and to use these to analyse the drivers of on-farm capital use in European agriculture. Based on Cobb Douglas estimates of farm-type specific production functions, we find that working capital is typically used in more than economically optimal quantities and often displays negative marginal returns across countries and farm types. This is less often the case with regard to fixed capital, but it is only in a small set of sectors where access to fixed capital appears severely constrained. These sectors include field crop and mixed farms in Denmark, dairy farms in East Germany, as well as mixed farms in Italy and the UK. The relationship between farm financial indicators and the estimated shadow prices of capital varies considerably across countries and sectors. Among the farms with a high shadow price for fixed capital in Denmark, high debt levels and little owned land tended to induce more intensive capital use, which may reflect the liberal Danish banking system. In East Germany, Italy and the UK, high debt levels made farmers more tightly capital constrained. Hence, in the latter group of countries, more traditional mechanisms of capital allocation based on debt capacity seemed to be at work. As a general conclusion, EU agriculture appears to be characterised by overcapitalisation rather than by credit constraints.

Performance Indicators in Agricultural Financial Markets. Factor Markets Working Document No. 43, May 2013

This study attempts to develop performance indicators for the financial markets based on the findings in an earlier Factor Markets Working Paper (No. 33, “Agricultural credit market institutions: A comparison of selected European countries”) and on FADN (Farm Accountancy Data Network) data. Two indicators were developed. One measured the long-term economic sustainability of agricultural firms since the financial characteristics of the firms were perceived as important factors when rejecting a loan applicant. If the indicator works, it should show that a low value in this indicator is related to the performance in the financial markets. The second indicator was the loan-to-value (LTV), or debt-to-asset ratio, the reasoning behind this indicator is that low values can point to credit constraints, and in WP 33 we saw that the interviewed experts expected LTVs to be much higher than what is actually the case. We find that the first indicator can’t be used to measure the performance of the financial institutions, since we can’t show any relationship between the indicator and activities in the financial markets. However, the indicator is valuable for its measurement of the long-term financial sustainability of the agricultural sector, or of the firms. The loan-to-value indicator does imply that most countries would have room to increase the credit.

The Reallocation of Agricultural Labour across Sectors: An Empirical Strategy for Micro Data. Factor Markets Working Document No. 45, May 2013

This paper presents an empirical methodology for studying the reallocation of agricultural labour across sectors from micro data. Whereas different approaches have been employed in the literature to better understand the mobility of labour, looking at the determinants to exit farm employment and enter off-farm activities, the initial decision of individuals to work in agriculture, as opposed to other sectors, has often been neglected. The proposed methodology controls for the selectivity bias, which may arise in the presence of a non-random sample of the population, in this context those in agricultural employment, which would lead to biased and inconsistent estimates. A 3-step multivariate probit with two selection and one outcome equations constitutes the selected empirical approach to explore the determinants of farm labour to exit agriculture and switch occupational sector. The model can be used to take into account the different market and production structures across European member states on the allocation of agricultural labour and its adjustments.

Determinants to Leave Agriculture and Change Occupational Sector: Evidence from an Enlarged EU. Factor Markets Working Document No. 46, May 2013

The objective of this paper is to explore the determinants to leave agriculture and change occupational sector. We adopt a 3-step multivariate probit where we control for selection bias at two stages in the decisions to work and, at a later stage, exit agriculture. The analysis is based on the European Union Labour Force Survey data expanded with additional regional indicators. The main results suggest that younger individuals are more likely to leave farming activities, although the largest outflows of agricultural labour are mainly associated with the retirement of people. Self-employed and family workers are generally less likely to leave agriculture and those with low levels of educations are found to be significantly constrained in entering the non-farm economy. Moreover, labour market conditions at the regional level do matter for switching occupational sector. Differences in the results among the selected new member states and the EU-15 can be explained by the diverse production structures, suggesting different capacities to release and absorb labour.

Factor Markets in General Computable Equilibrium Models. Factor Markets Working Document No. 47, May 2013

One objective of Computable general equilibrium (CGE) models is the analysis of economy-wide effects of policy measures. The focus of the Factor Markets project is to analyse the functioning of factor markets for agriculture in the EU-27, including the Candidate Countries. While agricultural and food markets are fully integrated in a European single market, subject to an EU-wide common policy, the Common Agricultural Policy (CAP), this is not the case for the agricultural factor markets capital, labour and land. There are partly serious differences with regard to member state regulations and institutions affecting land, labour and capital markets. The presentation of this heterogeneity of factor markets amongst EU Member States have been implemented in the CGE models to improve model-based analyses of the CAP and other policy measures affecting agricultural production. This final report comprises the outcome of a systematic extension and improvement of the Modular Applied GeNeral Equilibrium Tool (MAGNET) model starting from an overview of the current state of the art to represent factor markets in CGE models to a description of work on labour, land and capital in MAGNET.

Simulation Results of AgriPoliS about Diminishing Capital Subsidies and Restrictions. Factor Markets Working Document No. 55, June 2013

This paper investigates the impacts of high interest rates for borrowed capital and credit restrictions on the structural development of four European regions. The method used is the model AgriPoliS which is a spatial-dynamic agent-based model. It is able to provide aggregated results at the regional level, but very individual results as well by considering farms as independent entities. Farms can choose between different investment options during the simulation. Several scenarios with different interest rates for borrowed capital on the one hand as well as with different levels of credit restrictions on the other hand are tested and compared. Results show that higher interest rates have less impact on declining production branches than on expanding ones. If they have the possibility farms invest in the most profitable production branch which relative profitability might have changed with high interest rates. Credit restrictions lead farms to choose smaller and cheaper investments than expensive and large ones. Results also show that income losses in both cases due to under-investment compared to the reference situation are partially compensated by lower rental prices. The impacts on structural change also differ depending on the region and the initial situation. In summary, credit subsidies or imperfections on credit markets might have indirect impacts on the type of dominant investment and therefore on the whole regional agricultural sector as well.