Project

What is the impact of investment support in agriculture?

Lead Institute BW Institute of Farm Economics

Involved Institutes LR Institute of Rural Studies WF Institute of Forestry

Construction of a new dairy barn

Monitoring and ongoing evaluation of six state-related programmes for the development of rural areas during the years 2007 to 2013: subarea farm investment scheme

If agricultural holdings are keen to persist they ought to invest in technology and buildings. The state supports them via grants and garantees. We investigate the effectiveness and efficiency of these aids.

Background and Objective

The Thünen-Institute for farm management and the Institute for rural areas commonly evaluate the rural development programmes (RDPs) of the German states Northrhine-Westfalia, Hessia, Mecklenburg-Pommerania, Schleswig-Holstein, Lower Saxony/Bremen and Hamburg. The main task is to analyse and assess the effectiveness of the support measures with regard to the political goals. Within the limits of the RDPs investments of agricultural holdings for the improvement of productivity and sectoral competitiveness are supported. The objective of this support is to offer new opportunities of development for farms and to generate jobs and value added in rural areas.
We investigate the relevance of the state support regarding existing problems, and both the effectiveness and the efficiency of the support (7-state-evaluation).

Approach

The impact of the support scheme shall be identified by means of with-without-comparisons of structurally similar groups of enterprises in a combination with a before-after-comparison matching approach, productivity and efficiency analysis. More long term oriented analyses in structural development of agriculture complement the single farm based approaches.

Data and Methods

The investigation is mainly based on approval data including investment plans of supported farms and on annual accounts of supported and non-supported farms.

Our Research Questions

To what extent have supported investments contributed ....
1) ... to a better use of production factors on agricultural holdings?
2) ... to facilitate the introduction of new technologies and innovation?
3) ... to improving the competitiveness of the agricultural sector?

Results

Analyses of farm support data business plans and annual accounts referring to the financing of the investments and the development of productivity and efficiency indicate that the supported investments cause positive effects. This alone is however not a sufficient proof for the effectiveness of investment support since a considerable share of the supported investments would have been - at least partly - carried out without the support. This can be documented by the analysis of the business plans and additional model calculations regarding the utilisation of the debt service limit. Given the current level of interest rates and the willingness of banks to credit farms it has to be checked whether there is still need for capital subsidiation.

The support should be more focussed on farms which considerably contribute to the solution of major problems and are in need of financial support in order to be able to finance the planned investment. The improvement of housing conditions in intensive livestock breeding is currently of special interest.