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The Impact of Food Price Shock on Heterogenous Credit Constrained Firms

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  • Pavel Ciaian
  • d'Artis Kancs

Abstract

This paper analyses how rising agricultural prices affect heterogenous farm production and access to inputs under credit market imperfections in the CEE transition countries. Using the FADN farm level panel data, which contains 37416 observations for 2004 and 2005, we estimate a farm credit constraint equation and find that small individual farms (IF) are more credit constrained that large corporate farms (CF). Using the estimated parameters we simulate the effect of rising input and output prices on production and input use of IF and CF farms. Our results suggest that in the presence of credit market imperfections, the relatively less credit constrained CF tend to benefit more from higher output prices than IF. Given that farms in transition and developing countries are more credit constrained than farms in developed market economies, raising food prices may actually reduce their profits and income compared to the latter. Hence, not only consumers but also agricultural producers in the developing world may loose from the increasing food prices.

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Bibliographic Info

Paper provided by Economics and Econometrics Research Institute (EERI), Brussels in its series EERI Research Paper Series with number EERI_RP_2008_02.

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Length: 29 pages
Date of creation: Feb 2008
Date of revision:
Handle: RePEc:eei:rpaper:eeri_rp_2008_02

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Keywords: Credit constraint; food prices; firm level heterogeneity;

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References

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  1. Bhattacharyya, Anjana & Bhattacharyya, Arunava & Kumbhakar, Subal C., 1996. "Government Interventions, Market Imperfections, and Technical Inefficiency in a Mixed Economy: A Case Study of Indian Agriculture," Journal of Comparative Economics, Elsevier, vol. 22(3), pages 219-241, June.
  2. Ciaian, Pavel & Swinnen, Johan F.M., 2008. "Credit Market Imperfections and the Distribution of Policy Rents," 2008 International Congress, August 26-29, 2008, Ghent, Belgium 44050, European Association of Agricultural Economists.
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  4. Pavel Ciaian & Johan F.M. Swinnen, 2007. "Credit Market Imperfections and the Distribution of Policy Rents: The Common Agricultural Policy in the New EU Member States," LICOS Discussion Papers 18307, LICOS - Centre for Institutions and Economic Performance, KU Leuven.
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  16. repec:ags:ajaeap:43894 is not listed on IDEAS
  17. Petrick, Martin, 2004. "Farm investment, credit rationing, and governmentally promoted credit access in Poland: a cross-sectional analysis," Food Policy, Elsevier, vol. 29(3), pages 275-294, June.
  18. Laure Latruffe, 2005. "The Impact of Credit Market Imperfections on Farm Investment in Poland," Post-Communist Economies, Taylor & Francis Journals, vol. 17(3), pages 349-362.
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