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Agricultural policy uncertainty and farm level adjustments--the case of direct payments and incentives for farmland investment

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  • Carl Johan Lagerkvist

Abstract

A dynamic stochastic business-level land valuation model is derived to analyse how agricultural policy uncertainty regarding reform of the CAP area payment system affects farmland investment incentives. Subjective probability beliefs of Swedish farmers were collected in a survey and used to illustrate the implications of the model. The results show the working of adjustments in current farmland investment incentives triggered by the announcement of agricultural policy programmes linked to farmland. Lack of complete information causes inefficiency by inducing farm operators to over-invest before the reform date if they expect a reform that is likely to reduce their area payment. Policy uncertainty has surprisingly volatile and ambiguous effects on farmland investment incentives. Copyright 2005, Oxford University Press.

Suggested Citation

  • Carl Johan Lagerkvist, 2005. "Agricultural policy uncertainty and farm level adjustments--the case of direct payments and incentives for farmland investment," European Review of Agricultural Economics, Foundation for the European Review of Agricultural Economics, vol. 32(1), pages 1-23, March.
  • Handle: RePEc:oup:erevae:v:32:y:2005:i:1:p:1-23
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    Cited by:

    1. T Heikkinen & K Pietola, 2006. "Rural Investment and the Cost of Income Uncertainty," ERSA conference papers ersa06p51, European Regional Science Association.
    2. Bhaskar, Arathi & Beghin, John C., 2009. "How Coupled Are Decoupled Farm Payments? A Review of the Evidence," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 0(Number 1), pages 1-24, April.
    3. Jerzy Michalek & Pavel Ciaian & d’Artis Kancs, 2014. "Capitalization of the Single Payment Scheme into Land Value: Generalized Propensity Score Evidence from the European Union," Land Economics, University of Wisconsin Press, vol. 90(2), pages 260-289.
    4. Heikkinen, T. & Pietola, K., 2009. "Investment and the dynamic cost of income uncertainty: The case of diminishing expectations in agriculture," European Journal of Operational Research, Elsevier, vol. 192(2), pages 634-646, January.
    5. Happe, Kathrin & Balmann, Alfons & Kellermann, Konrad & Sahrbacher, Christoph, 2008. "Does structure matter? The impact of switching the agricultural policy regime on farm structures," Journal of Economic Behavior & Organization, Elsevier, vol. 67(2), pages 431-444, August.
    6. Tiina Heikkinen, 2005. "Optimal Investment under Uncertainty Regarding Income Subsidies," ERSA conference papers ersa05p656, European Regional Science Association.
    7. Rivera-Ferre, Marta G. & Ortega-Cerda, Miquel, 2011. "Assessment of the Agri-food System for Sustainability: Recognizing Ignorance," 2011 International Congress, August 30-September 2, 2011, Zurich, Switzerland 115965, European Association of Agricultural Economists.
    8. Sergo Gomez i Paloma & Vittorio Galerani & Meri Ragi & Davide Viagi & Dimitar Nikolov, 2008. "Methodological Approach for Evaluation ff Investment Behavior of Farmers in Different Development Scenarios," Economic Thought journal, Bulgarian Academy of Sciences - Economic Research Institute, issue 5, pages 81-96.
    9. Rizov, Marian & Pokrivcak, Jan & Ciaian, Pavel, 2013. "CAP Subsidies and the Productivity of EU Farms," Factor Markets Working Papers 148, Centre for European Policy Studies.
    10. Carpentier, Alain & Gohin, Alexandre & Sckokai, Paolo & Thomas, Alban, 2015. "Economic modelling of agricultural production: past advances and new challenges," Revue d'Etudes en Agriculture et Environnement, Editions NecPlus, vol. 96(01), pages 131-165, March.
    11. Marian Rizov & Jan Pokrivcak & Pavel Ciaian, 2013. "CAP Subsidies and Productivity of the EU Farms," Journal of Agricultural Economics, Wiley Blackwell, vol. 64(3), pages 537-557, September.
    12. Bhaskar, Arathi & Beghin, John C., 2007. "How Coupled are Decoupled Farm Payments? A Review of Coupling Mechanisms and the Evidence," Working Papers 7347, Iowa State University, Department of Economics.
    13. Elisa Gatto & Guido Signorino, 2014. "Crop-diversity and Cereal Production under the CAP Reform: Evidence from Italy," SCIENZE REGIONALI, FrancoAngeli Editore, vol. 2014(3), pages 35-50.
    14. Voica, Daniel C., 2014. "Are Subsidies Decoupled from Production in the Presence of Incomplete Financial Markets?," 2014 Annual Meeting, July 27-29, 2014, Minneapolis, Minnesota 169788, Agricultural and Applied Economics Association.
    15. Fuss, Sabine & Szolgayova, Jana & Obersteiner, Michael & Gusti, Mykola, 2008. "Investment under market and climate policy uncertainty," Applied Energy, Elsevier, vol. 85(8), pages 708-721, August.
    16. Weerahewa, Jeevika & Meilke, Karl D. & Vyn, Richard J. & Haq, Zahoor Ul, 2008. "The Determinants of Farmland Values in Canada," Working Papers 43461, Canadian Agricultural Trade Policy Research Network.
    17. Moro, Daniele & Sckokai, Paolo, 2013. "The impact of decoupled payments on farm choices: Conceptual and methodological challenges," Food Policy, Elsevier, vol. 41(C), pages 28-38.

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