Effects of Economic Factors on Adoption of Robotics and Consequences of Automation for Productivity Growth of Dairy Farms. Factor Markets Working Paper No. 32, December 2012

In the long term, productivity and especially productivity growth are necessary conditions for the survival of a farm. This paper focuses on the technology choice of a dairy farm, i.e. the choice between a conventional and an automatic milking system. Its aim is to reveal the extent to which economic rationality explains investing in new technology. The adoption of robotics is further linked to farm productivity to show how capital-intensive technology has affected the overall productivity of milk production. The empirical analysis applies a probit model and an extended Cobb-Douglas-type production function to a Finnish farm-level dataset for the years 2000–10. The results show that very few economic factors on a dairy farm or in its economic environment can be identified to affect the switch to automatic milking. Existing machinery capital and investment allowances are among the significant factors. The results also indicate that the probability of investing in robotics responds elastically to a change in investment aids: an increase of 1% in aid would generate an increase of 2% in the probability of investing. Despite the presence of non-economic incentives, the switch to robotic milking is proven to promote productivity development on dairy farms. No productivity growth is observed on farms that keep conventional milking systems, whereas farms with robotic milking have a growth rate of 8.1% per year. The mean rate for farms that switch to robotic milking is 7.0% per year. The results show great progress in productivity growth, with the average of the sector at around 2% per year during the past two decades. In conclusion, investments in new technology as well as investment aids to boost investments are needed in low-productivity areas where investments in new technology still have great potential to increase productivity, and thus profitability and competitiveness, in the long run.

CAP Subsidies and the Productivity of EU Farms. Factor Markets Working Paper No. 37, March 2013

This paper investigates the impact of subsidies from the common agricultural policy on the total factor productivity of farms in the 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 samples from the Farm Accountancy Data Network for EU-15 countries. Our main findings are clear: subsidies had a negative impact on farm productivity in the period before the decoupling reform was implemented; after decoupling the effect of subsidies on productivity was more nuanced, as in several countries it turned positive.

Influence of the Common Agricultural Policy and Heterogeneous Land Quality on Land Rent and Land Allocation. Factor Markets Working Paper No. 38, March 2013

Against the background of the current discussion about the EU’s common agricultural policy (CAP) after 2013, the question of the impact of government support on land prices is crucially important. Validation of the CAP’s success also hinges on a proper assessment of a choice of policy instruments. This study therefore has the objective of investigating on a theoretical basis the effects of different government support measures on land rental prices and land allocation. The different measures under consideration are the price support, area payments and decoupled single farm payments (SFPs) of the CAP. Our approach evaluates the potential impact of each measure based on a Ricardian land rent model with heterogeneous land quality and multiple land uses. We start with a simple model of one output and two inputs, where a Cobb-Douglas production technology is assumed between the two factors of land and non-land inputs. In a second step, an outside option is introduced. This outside option, as opposed to land use of the Ricardian type, is independent of land quality. The results show that area payments and SFPs become fully capitalised into land rents, whereas in a price support scheme the capitalisation depends on per-acreage productivity. Moreover, in a price support scheme and a historical model, the capitalisation is positively influenced by land quality. Both area payments and price supports influence land allocation across different uses compared with no subsidies, where the shift tends to be larger in an area payment scheme than in a price support scheme. By contrast, SFPs do not influence land allocation.

RED vs. REDD: Biofuel Policy vs. Forest Conservation. Factor Markets Working Document No. 41, May 2013

This paper assesses the complex interplay between global Renewable Energy Directives (RED) and the United Nations programme to Reduce Emissions from Deforestation and forest Degradation (REDD). We examine the interaction of the two policies using a scenario approach with a recursive-dynamic global Computable General Equilibrium model. The consequences of a global biofuel directive on worldwide land use, agricultural production, international trade flows, food prices and food security out to 2030 are evaluated with and without a strict global REDD policy. We address a key methodological challenge of how to model the supply of land in the face of restrictions over its availability, as arises under the REDD policy. The paper introduces a flexible land supply function, which allows for large changes in the total potential land availability for agriculture. Our results show that whilst both RED and REDD are designed to reduce emissions, they have opposing impacts on land use. RED policies are found to extend land use whereas the REDD policy leads to an overall reduction in land use and intensification of agriculture. Strict REDD policies to protect forest and woodland lead to higher land prices in all regions. World food prices are slightly higher overall with some significant regional increases, notably in Southern Africa and Indonesia, leading to reductions in food security in these countries. This said, real food prices in 2030 are still lower than the 2010 level, even with the RED and REDD policies in place. Overall this suggests that RED and REDD are feasible from a worldwide perspective, although the results show that there are some regional problems that need to be resolved. The results show that countries directly affected by forest and woodland protection would be the most economically vulnerable when the REDD policy is implemented. The introduction of REDD policies reduces global trade in agricultural products and moves some developing countries to a net importing position for agricultural products. This suggests that the protection of forests and woodlands in these regions reverses their comparative advantage as they move from being land-abundant to land-scarce regions. The full REDD policy setting, however, foresees providing compensation to these countries to cover their economic losses.

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.

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.

Will improved access to capital dampen the need for more agricultural land? A CGE analysis of agricultural capital markets and world-wide biofuel policies. Factor Markets Working Paper No. 48, May 2013

This paper analyses the consequences of enhanced biofuel production in regions and countries of the world that have announced plans to implement or expand on biofuel policies. The analysis considers biofuel policies implemented as binding blending targets for transportation fuels. The chosen quantitative modelling approach is two-fold: it combines the analysis of biofuel policies in a multi-sectoral economic model (MAGNET) with systematic variation of the functioning of capital and labour markets. This paper adds to existing research by considering biofuel policies in the EU, the US and various other countries with considerable agricultural production and trade, such as Brazil, India and China. Moreover, the application multi-sectoral modelling system with different assumptions on the mobility of factor markets allows for the observation of changes in economic indicators under different conditions of how factor markets work. Systematic variation of factor mobility indicates that the ‘burden’ of global biofuel policies is not equally distributed across different factors within agricultural production. Agricultural land, as the pre-dominant and sector-specific factor, is, regardless of different degrees of inter-sectoral or intra-sectoral factor mobility, the most important factor limiting the expansion of agricultural production. More capital and higher employment in agriculture will ease the pressure on additional land use – but only partly. To expand agricultural production at global scale requires both land and mobile factors adapted to increase total factor productivity in agriculture in the most efficient way.

A Spatial Analysis of Agricultural Land Prices in Bavaria. Factor Markets Working Document No. 50, June 2013

This paper empirically analyses a dataset of more than 7,300 agricultural land sales transactions from 2001 and 2007 to identify the factors influencing agricultural land prices in Bavaria. We use a general spatial model, which combines a spatial lag and a spatial error model, and in addition account for endogeneity introduced by the spatially lagged dependent variable as well as other explanatory variables. Our findings confirm the strong influence of agricultural factors such as land productivity, of variables describing the regional land market structure, and of non-agricultural factors such as urban pressure on agricultural land prices. Moreover, the involvement of public authorities as a seller or buyer increases sales prices in Bavaria. We find a significant capitalisation of government support payments into agricultural land, where a decrease of direct payments by 1% would decrease land prices in 2007 and 2001 by 0.27% and 0.06%, respectively. In addition, we confirm strong spatial relationships in our dataset. Neglecting this leads to biased estimates, especially if aggregated data is used. We find that the price of a specific plot increases by 0.24% when sales prices in surrounding areas increase by 1%.

The Role of Environmental and Land Transaction Regulations on Agricultural Land Price: The example of Brittany. Factor Markets Working Document No. 52, June 2013

Using data from individual transactions for the period 1994-2010 in the French NUTS2 region Brittany, the authors investigated how environmental regulations and transaction land regulations influence the price of sold plots. Regressions on three sub-samples of buyers were performed in order to assess whether different buyers have different attitudes or plans regarding the farmland purchased: a sub-sample including only farmer-buyers, a sub-sample including non-farmer individual buyers, and a sub-sample including non-farmer non-individual buyers. Estimations were performed ignoring and accounting for spatial interactions (model SARAR). Results indicate that the price of land decreases when buyers are farmers, that the nitrate surplus area zoning increases the price of land, even more so for farmer-buyers. Regarding land transaction regulations, there is a negative effect, on land price, of the purchaser being the current tenant or being the land regulating public body SAFER. Estimating the model on different sub-samples depending on the buyers’ type shed light on the factors that are more important for each buyer.

Farm/Household-Level Simulation: Results of Testing Policy and Other Scenarios. Factor Markets Working Document No. 54, June 2013

Among the different production factors, land is the one that most often limits farm development and one of the most studied. The connection between policy and other context variables and land markets is at the core of the policy debate, including the present reform of the Common Agricultural Policy. The proposal of the latter has been published in October 2011 and in Italy it will include the switch of the payment regime from an historical to a regional basis. The authors’ objective is to simulate the impact of the proposed policy reform on the land market, particularly on land values and propensity to transaction. They combine insights and data from a farm household investment model revised and extended in order to simulate the demand curve for land in different policy scenarios and a survey of farmers stated intention carried out in the province of Bologna (Italy) in 2012. Based on these results, the authors calibrate a mathematical programming model of land market exchanges for the province of Bologna and use this model form simulation. The results of the model largely corroborate the results from the survey and both hint at a relevant reaction of the land demand and supply to the shift from the historical to the regionalised payments. As effect, the regionalisation would result in increased rental prices and in a tendency to the re-allocation of land.

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.

Determinants of Farm Labour Use: A Comparison between Ireland and Italy. Factor Markets Working Documents No. 60, August 2013

This paper examines the effect of the decoupling of farm direct payments upon the off-farm labour supply decisions of farmers in both Ireland and Italy, using panel data from the Farm Business Survey (REA) and FADN database covering the period from 2002 to 2009 to model these decisions. Drawing from the conceptual agricultural household model, the authors hypothesise that the decoupling of direct payments led to an increase in off-farm labour activity despite some competing factors. This hypothesis rests largely upon the argument that the effects of changes in relative wages have dominated other factors. At a micro level, the decoupling-induced decline in the farm wage relative to the non-farm wage ought to have provoked a greater incentive for off-farm labour supply. The main known competing argument is that decoupling introduced a new source of non-labour income i.e. a wealth effect. This may in turn have suppressed or eliminated the likelihood of increased off-farm labour supply for some farmers. For the purposes of comparative analysis, the Italian model utilises the data from the REA database instead of the FADN as the latter has a less than satisfactory coverage of labour issues. Both models are developed at a national level. The paper draws from the literature on female labour supply and uses a sample selection corrected ordinary least squares model to examine both the decisions of off-farm work participation and the decisions regarding the amount of time spent working off-farm. The preliminary results indicate that decoupling has not had a significant impact on off-farm labour supply in the case of Ireland but there appears to be a significantly negative relationship in the Italian case. It still remains the case in both countries that the wealth of the farmer is negatively correlated with the likelihood of off-farm employment.

The Role of Pluriactivity in Farm Exit and Labour Supply Decisions. Factor Markets Working Document No. 67, August 2013

EDITED VERSION TO BE PUBLISHED SOON Pluriactivity has been a topic of research in agriculture for the best part of a century. It is a term which has both broad and narrow definitions and hence is subject to multiple interpretations. This paper considers two forms of pluriactivity: within the farm gate pluriactivity, also commonly referred to as farm diversification, and beyond the farm-gate pluriactivity, also known as multiple job holding. Previous studies of pluriactivity have shown that it can inhibit the natural process of structural change in the farm sector, by allowing small and unprofitable farms to survive with the support of income from outside the sector. In this paper, two empirical models of pluriactivity are estimated using farm level data for Ireland. The first examines the impact of on-farm diversification on off-farm labour supply, while the second investigates the relationship between off-farm labour supply and farm exit which is specified in the context of retirement and non-succession. The result of the first model suggests that farms that engage in within the farm gate pluriactivity are less likely to engage in beyond the farm gate pluriactivity, in other words more diversified farmers are less likely to work off farm. The second model confirms previous findings in the literature that part-time farmers have a reduced probability of having a farm successor. While the model results are specific to the Irish case, they do provide some value insights into the impacts of pluriactivity on structural change in farming.

Ending the State-Building Impasse: What Can Be Learned from Previous EU Enlargements that Might Offer Solutions for Bosnia and Herzegovina. ACES Working Paper No. 10, 2007

On the basis of the success of the two previous waves of European Union enlargement to post-communist states, EU accession is the international community's solution for ending the state-building impasse in Bosnia and Herzegovina. Through a literature review of analysis of the recent EU enlargements, this paper compares those countries' experiences with the current situation in Bosnia, and raises questions about the ability of the EU to address state-building issues through the accession process. The paper concludes that the previous enlargements do not provide a model for state-building in Bosnia. Because the EU's attempts to help along the process of state building in Bosnia is a new type of policy project, the paper proposes how the enlargement process might be adapted to address the specific problems in Bosnia, particularly in terms using human rights norms to compel Bosnian leaders to adopt necessary reforms.

Horizontal and Vertical Interdependence in the Multinational Subsidiary Networks. ACES Working Paper No. 7, July 2008

Existing theoretical studies have predicted that a multinational firm's location choices are interdependent across countries. Little has, however, been done to test the hypothesis at individual subsidiary level. This paper uses a detailed French multinational subsidiary dataset and estimates how a firm's decision to invest in a foreign country is not only conditional on the characteristics of that country but also the firm's existing subsidiary network Using a structural spatial econometric model, the paper finds evidence of both horizontal and vertical interdependence in multinationals' location decisions. The results indicate that while multinational firms have little incentive to duplicate their production in countries with low bilateral trade costs, they are motivated to build a vertical subsidiary network in these countries ~ especially when the countries have complementary comparative advantages.