Model-based analysis of the structural change in agriculture

Background and Objective

The evolution of agricultural markets is difficult to predict, due to fluctuating prices and yields. The project’s objective is to combine existing economic models to predict the impacts of certain policies and changes on the agricultural markets more precisely. Those models should display agricultural production at farm-, regional- and national level and consider the impacts of uncertainty and risk. The methods applied are based on econometric and mathematical programming models. It is intended to validate these models by empirical application. The team of the Thünen Institute of Rural Studies aims to provide an improved tool for projections, which is based on the Farm Accountancy Data Network (FADN). For this, we use our experience with the Common Agricultural regionalized Impact (CAPRI)-farm group model.

Approach

In the first step, we prepared the FADN data and developed an application tool for the EU-Commission, in which the FADN data can be analysed in all its variety.

In the second step, we developed new methods of econometric and mathematical models. This step contained the development of a model that is capable to analyse structural change in agriculture. The models are derived from marketing science and are based on the concept of attraction of different action alternatives and the estimated impact of yield and price fluctuations.

Data and Methods

The data source is the Farm Accountancy Data Network (FADN) of the EU. Methodologically, we applied econometric and mathematical programming models.

Our Research Questions

• What are the drivers of structural change in agriculture?
• Do policies impact structural change and to what extent?
• How do farmers react to an increase of yield or price risk?
• What kinds of farm structures are most competitive in the future?

Results

With the application tool we developed, it is possible to view the project’s FADN data in tables or figures at farm or regional level and finally use the extracted data for further analysis in econometric or mathematical models. With that application tool, production values and their changes regarding crop- and animal production can be analysed. It is also possible to view input costs at farm level as well as subsidies and income. Furthermore, supply, yields and prices of the agricultural goods can be displayed. The project report of Neuenfeldt & Gocht (2012) presents the application tool as well as a description how the data is processed.

We analysed the structural change in agriculture using an econometric model. This analysis is based on a recent study at farm level, which we applied at regional level in Germany in this project. It showed that the future structural change is impacted most by the historic regional farm structure. The complete project report can be found in Neuenfeldt et al. (2014).