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Drivers of agricultural capital productivity in selected EU member states

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  • Petrick, Martin
  • Kloss, Mathias

Abstract

The aim of this Working Paper is to provide an empirical analysis of the marginal return on working capital and fixed capital in agriculture, based on data gathered by the Farm Accountancy Data Network from seven EU member states. Particular emphasis is placed on the detection of credit market imperfections. The key idea is to provide farm group-specific estimates of the shadow price of capital, and to use these to analyse the drivers of on-farm capital use in European agriculture. Based on Cobb Douglas estimates of farm-type specific production functions, we find that working capital is typically used in more than economically optimal quantities and often displays negative marginal returns across countries and farm types. This is less often the case with regard to fixed capital, but it is only in a small set of sectors where access to fixed capital appears severely constrained. These sectors include field crop and mixed farms in Denmark, dairy farms in East Germany, as well as mixed farms in Italy and the UK. The relationship between farm financial indicators and the estimated shadow prices of capital varies considerably across countries and sectors. Among the farms with a high shadow price for fixed capital in Denmark, high debt levels and little owned land tended to induce more intensive capital use, which may reflect the liberal Danish banking system. In East Germany, Italy and the UK, high debt levels made farmers more tightly capital constrained. Hence, in the latter group of countries, more traditional mechanisms of capital allocation based on debt capacity seemed to be at work. As a general conclusion, EU agriculture appears to be characterised by overcapitalisation rather than by credit constraints.

Suggested Citation

  • Petrick, Martin & Kloss, Mathias, 2012. "Drivers of agricultural capital productivity in selected EU member states," Working Papers 132838, Factor Markets, Centre for European Policy Studies.
  • Handle: RePEc:ags:famawp:132838
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Sahrbacher, Amanda & Sahrbacher, Christoph & Ostermeyer, Arlette, 2014. "How financial constraints distort farm investment behaviour and regional development: a comparative analysis of four European regions," 2014 International Congress, August 26-29, 2014, Ljubljana, Slovenia 182720, European Association of Agricultural Economists.
    2. Petrick, Martin & Kloss, Mathias, 2018. "Identifying factor productivity from micro-data: The case of EU agriculture," IAMO Discussion Papers 171, Leibniz Institute of Agricultural Development in Transition Economies (IAMO).
    3. Petrick, Matin & Kloss, Mathias, 2013. "Identifying Factor Productivity from Micro-data: The case of EU agriculture," Factor Markets Working Papers 144, Centre for European Policy Studies.
    4. Guastella, G. & Moro, D. & Sckokai, P. & Veneziani, M., 2013. "CAP Effects on Agricultural Investment Demand in Europe," 2013 Second Congress, June 6-7, 2013, Parma, Italy 149758, Italian Association of Agricultural and Applied Economics (AIEAA).
    5. Heikkila, Anna-Maija & Myyra, Sami & Pietola, Kyosti, 2012. "Effects of Economic Factors on Adoption of Robotics and Consequences of Automation for Productivity Growth of Dairy Farms," Working Papers 144002, Factor Markets, Centre for European Policy Studies.
    6. Petrick, Martin & Kloss, Mathias, 2013. "Synthesis Report on the Impact of Capital Use," Factor Markets Working Papers 169, Centre for European Policy Studies.
    7. Guastella, Giovanni & Moro, Daniele & Sckokai, Paolo & Veneziani, Mario, 2013. "Investment behaviour of EU arable crop farms in selected EU countries and the impact of policy reforms," Working Papers 152083, Factor Markets, Centre for European Policy Studies.
    8. Petrick, Martin & Kloss, Mathias, 2013. "Identifying Factor Productivity by Dynamic Panel Data and Control Function Approaches: A Comparative Evaluation for EU Agriculture," 53rd Annual Conference, Berlin, Germany, September 25-27, 2013 156104, German Association of Agricultural Economists (GEWISOLA).
    9. Kersting, Stefan & Hüttel, Silke & Odening, Martin, 2015. "Structural change in agriculture under capacity constraints: An equilibrium approach," Thuenen-Series of Applied Economic Theory 140, University of Rostock, Institute of Economics.
    10. Kersting, Stefan & Hüttel, Silke & Odening, Martin, 2016. "Industry dynamics under production constraints — The case of the EU dairy sector," Economic Modelling, Elsevier, vol. 55(C), pages 135-151.

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    Keywords

    credit market; Farm Accountancy Data Network; on-farm capital use; capital productivity; Agricultural Finance;

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