The effect of decoupled direct payments on farm exit behaviour: quasi-experimental evidence from Europe

As a consequence of the recent reform of the Common Agricultural Policy the agricultural sector throughout the EU is undergoing a process of major structural change. The removal of direct payments and price support policies are expected to change farmers' behaviour and force them to reconsider their participation in agricultural production. In this paper we perform an ex-post cross-country farm level empirical analysis of farmers' market exit behaviour in response to these reforms. Using a panel dataset for the EU15 countries for the period 2001-2005, we apply quasi-experimental empirical methods to identify the causal relationship between the decoupling policy and farm market exit. Our analysis shows that, contrary to a priori expectations, the probability of farm exit decreased due to the policy change, particularly for farms where payments are only partially decoupled. We also find, however, that the reform facilitated exit for farms that had already made the decision to leave the sector.Common Agricultural Policy, subsidy decoupling, farm exit, difference-in-differences

The effects of government spending in a small open economy within a monetary union

Small open economies within a monetary union have a limited range of stabilisation tools, as area-wide nominal interest and exchange rates do not respond to country-specific shocks. Such limitations imply that imbalances can be difficult to resolve. We assess the role that government spending can play in mitigating this issue using a global DSGE model, with an extensive fiscal sector allowing for a rich set of transmission channels. We find that complementarities between government and private consumption can substantially increase spending multipliers. Government investment, by raising productive public capital, improves external competitiveness and counteracts external imbalances. An ex-ante budget-neutral switch of government expenditure towards investment has beneficial effects in the medium run, while short-run effects depend on the degree of co-movement between private and government consumption. Finally, spillovers from a fiscal stimulus in one region of a monetary union depend on trade linkages and can be sizeable

An investigation into the impact of policy reform on the level of structural change in the agri-food sector of Ireland, Denmark and the Netherlands

This paper conducts a detailed, micro-focused investigation on the implications of recent agricultural policy changes on the structure of production systems in Ireland, Denmark and the Netherlands in terms of farm numbers, system switching, specialisation, the role of economies of scale, on-farm investment, off-farm employment and economic viability. Given the close relationship between farm structure and agricultural production, the impact of the recent CAP reform on production decisions should give a good indication of the form agricultural structural change will take. Two competing hypotheses of post decoupling structural change are proposed; a ‘production inducing effect’ and an ‘expectations effect’. Using Irish, Danish and Dutch micro-data, which are comparable due to their participation in FADN, a descriptive analysis of the key characteristics of production in the agri-food sectors in each country will be performed using key indicators of structural change. The results indicate that the ‘expectations effect’, which claims that producers may adopt a ‘safety first’ strategy and make only minimal changes to production plans in case future payments are reassessed and re-linked to production or an agricultural activity, seems to be prevalent.Policy Reform, Agricultural Structural Change, FADN, Agricultural and Food Policy, Farm Management,

The economic viability of biomass crops versus conventional agricultural systems and its potential impact on farm incomes in Ireland

Ireland is currently importing 90 percent of its energy. The burning of domestically produced nonrenewable peat provides 4.9 percent of Ireland’s total primary energy supply while renewable biomass crops currently account for only 1 percent of the domestically produced energy supply. The Irish government have set a target of 30% of peat (approximately 0.9 million tonnes) used for electricity generation to be replaced by renewable energy crops. This would be equivalent to approximately 0.6 million tonnes of biomass crops or approximately 45,000 hectares of biomass. Direct payments and subsidies accounted for over 100 percent of average family farm income on beef and sheep farms in 2006. Therefore there appears to be significant potential for Irish farmers to replace conventional agricultural enterprises with biomass crops. A probit model was built to identify the socio-economic characteristics of farmers who may be willing to adopt energy crop production. The results from this were used in the construction of a linear programming model to determine the optimal enterprise for each farmer at varying energy prices.Willow, Miscanthus, Co-firing, Net present value, Probit, Linear programming, Agricultural Finance, Institutional and Behavioral Economics, Resource /Energy Economics and Policy,

Valuing the risk associated with willow and miscanthus relative to conventional agricultural systems

The agronomic characteristics of willow and miscanthus make these crops highly susceptible to risk. This is particularly true in a country such as Ireland which has limited experience in the production of these crops. Issues such as soil and climate suitability have as yet to be resolved. The lengthy production lifespan of energy crops only serve to heighten the level of risk that affects key variables. The uncertainty surrounding the risk variables involved in producing willow and miscanthus, such as the annual yield level and the energy price, make it difficult to accurately calculate the returns of such a project. The returns from willow and miscanthus are compared with those of conventional agricultural enterprises using Stochastic Efficiency with Respect to a Function (SERF). A risk premium is calculated which farmers would need to be compensated with in order for them to be indifferent between their current enterprise and switching to biomass crop production. With the exception of spring barley, a risk premium is required if farmers are to be indifferent between their current enterprise and willow or miscanthus. The value of the risk premium required to entice farmers to switch to miscanthus production is significantly less than that required for willow. This suggests that a greater level of risk is associated with willow than with miscanthus.Biomass, SERF, Risk Premium, Resource /Energy Economics and Policy, Risk and Uncertainty,

US corporate tax rate cuts: Spillovers to the Irish economy

We examine spillovers to the Irish economy from US corporate income tax rate cuts and find they lead to a small but persistent increase in Irish economic output. Our analysis of the transmission channels shows that an increase in investment, employment and exports in the externally-financed industrial sector largely drives this expansion. We also find that output spillovers from US corporate income tax cuts are larger when there is slack in the Irish labour market. Our findings suggest that the changing structure of the Irish economy means any spillovers to real economic activity from the recent US corporate tax cuts could be relatively minor. However, the larger presence and shifting focus of foreign multinational corporations? operations in Ireland means lessons from past US corporate tax cuts may be of limited value in predicting the effects of the recent US tax system reform

The macroeconomic effects of global supply chain reorientation

Policymakers around the world are encouraging the local production of key inputs to reduce risks from excessive dependencies on foreign suppliers. We analyse the macroeconomic effects of supply chain reorientation through localisation policies, using a global dynamic general equilibrium model. We proxy non-tariff measures, such as the stricter enforcement of regulatory standards, which reduce import quantity but do not directly alter costs and prices. These measures have, so far, been a key component of attempts to reshore production and are an increasingly popular trade policy instrument in general. Focusing on the euro area, we find that localisation policies are inflationary, imply transition costs and generally have a negative long-run effect on aggregate domestic output. The size (and sign) of the impact depends on whether these policies are implemented unilaterally or induce a retaliation from trade partners, and also the extent to which they reduce domestic competition and productivity. We provide some recommendations for policymakers considering implementing a localisation agenda