Accounting for farm heterogeneity in the assessment of agricultural policy impacts on structural change

This study aims at investigating the impact of agricultural policies on structural change process in the French farming sector. As farms may behave differently, a mixture modeling approach is applied in order to account for unobserved farm heterogeneity. A multinomial logit specification is used for the transition probabilities and the parameters of the model are estimated by maximum likelihood method using the expectation-maximization (EM) algorithm. An empirical application to an unbalanced panel over 2000-2013 shows that the French farming sector consists of a mixture of two types of farms with transition processes very different. The results also show that the impact of subsidies from the First and the Second Pillars of the Common Agricultural policy (CAP) depends on the type membership of farms. I thus argued that agricultural policy assessment should pay more attention on potential unobserved heterogeneity in farms’ behavior.