Assessing the impact of future CAP reforms on the demand of production factors

The CAP reform process has been a central issue for agricultural economics research in recent years, and is gaining further attention in view of the post-2013 perspectives. The objective of this paper is to assess ex-ante the effect of different post-2013 CAP and market scenarios on the demand of productions factors. The paper is based on the use of farm household dynamic programming models maximising the net present value with a time horizon until 2030. A representative model has been implemented for 18 different farming systems in 8 EU countries. Changes in marginal values of selected resource constraints (land, labour and capital) are used to assess the potential effect of different scenarios on farm-household demand of production factors. Results highlight that both policy and market conditions change strongly the demand of productive factors.CAP reform, Investment behaviour, Farm Household model, Factor markets, Agricultural and Food Policy, Q12,

Assessing the impact of future CAP reforms on the demand of production factors

The CAP reform process has been a central issue for agricultural economics research in recent years, and is gaining further attention in view of the post-2013 perspectives. The objective of this paper is to assess ex-ante the effect of different post-2013 CAP and market scenarios on the demand of productions factors. The paper is based on the use of farm household dynamic programming models maximising the net present value with a time horizon until 2030. A representative model has been implemented for 18 different farming systems in 8 EU countries. Changes in marginal values of selected resource constraints (land, labour and capital) are used to assess the potential effect of different scenarios on farm-household demand of production factors. Results highlight that both policy and market conditions change strongly the demand of productive factors.JRC.J.4-Agriculture and Life Sciences in the Econom

Assessing the impact of future CAP reforms on the demand of production factors

The CAP reform process has been a central issue for agricultural economics research in recent years, and is gaining further attention in view of the post-2013 perspectives. The objective of this paper is to assess ex-ante the effect of different post-2013 CAP and market scenarios on the demand of productions factors. The paper is based on the use of farm household dynamic programming models maximising the net present value with a time horizon until 2030. A representative model has been implemented for 18 different farming systems in 8 EU countries. Changes in marginal values of selected resource constraints (land, labour and capital) are used to assess the potential effect of different scenarios on farm-household demand of production factors. Results highlight that both policy and market conditions change strongly the demand of productive factors

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

Simulation of Land Use and Investment Behaviour under Different Policy Scenarios Results of the extended farm/household model

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

The Impact of the 2013 CAP Reform on Land Markets in Italy

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 (CAP). The current proposals for the post- 2013 CAP will include the switch of the payment regime from an historical to a regional basis. This component, as well as the greening and other ‘microprovisions’ can have an effect on the land markets. The objective of this chapter is to assess the potential impact of the proposed policy reform (in particularconcerning the regionalisation of payments) on the land market. Attention will focus on changes in propensity to rent-in and out and in transactions due to the proposed provisions for the post-2013 CAP. To achieve this goal, the authors jointly use: a) a survey of farmers stated intention, and b) a mathematical programming model simulating the land markets in different policy scenarios. Both are applied to a case study at the scale of the province of Bologna, Italy (NUTS 3). The results of the model corroborate the results from the survey, though the model is much more reactive to policy changes, while the survey has a larger share of “no changes”. Both hint at a relevant reaction of the land demand and supply to the shift from the historical to the regionalised payments, due to the differentiated and opposite effects that the reform would have on different farm types and sub-regions. The payment would be more capitalised into the land value, at the margin, as long as it is less constrained by the ownership of entitlements. As an effect, the regionalisation would potentially result in increased rental prices and in a tendency to re-allocate land

Factors Affecting the Impact of CAP Scenarios on Farm Structure: An Analysis Based on Stated Intentions

Several authors have emphasised the effect of agricultural policy (such as SFP) as a driver of structural change. This paper aims to identify the determinants of the change in the use of productive factors under different policy scenarios. The analysis is performed ex ante, assessing the effect of CAP abolishment (as compared to the current CAP) on the use of productive factors, based on stated intentions by farmers. The results highlight the role of farm size, intensity and education in determining different patterns of reaction to policy changes. Also differences are identified among the three main component of structural change, land, capital and labour, with the latter being the less dependent upon the CAP.structural changes, CAP, stated intentions, multinomial logit, Agricultural and Food Policy, Farm Management,

Farm Investment Behaviour under the CAP Reform Process

The results of the study, based on survey analysis as well as on modelling of farm behaviour, can be summarised in four main outcomes: Similar to the results of the first Investment study carried out in 2006 and published in 2008 (Gallerani. et. al.), in the context of the present study (carried out in 2009) for about half of the farms decoupling did not result in any change. Among those farms showing some reaction, one of the more prominent effects is the increase in on-farm investment. The price trends in 2007/2008 and the ongoing economic and financial crisis have partially reshaped access to credit, perceptions of objectives, constraints and expectations. In particular, farms have witnessed a major reduction in access to credit, particularly the share of farms using short term credit, which dropped from more than 40% in 2006 to about 7% in 2009. The change in economic conditions has increased this role of the CAP, and the importance of CAP payments in covering current expenditures has become more evident. Prices confirm their role as the key variable for investment choices. The results of the modelling exercise confirm that farm and farm-household income and investment choices depend more on the price level than on the level of payment received. Altogether, the combined effect of the recent policy reform (decoupling and first pillar payment reductions), as well as price and cost developments tend to reinforce the role of policy for the economic and social sustainability of farming. Notably, policy areas such as income support, investment and credit management, market access, as well as transitory and cross-policy mechanisms, appear to be of particular importance. Uncertainty (and related risk-management instruments) seems to play an increasing role in the investment decision process.JRC.J.5-Agriculture and Life Sciences in the Econom

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

Farm/Household-Level Simulation Results of Testing Policy and Other Scenarios

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