CAP Effects on Agricultural Investment Demand in Europe

Gianni Guastella, Daniele Moro, Paolo Sckokai and Mario Veneziani

No 150619, 2013 Annual Meeting, August 4-6, 2013, Washington, D.C. from Agricultural and Applied Economics Association

Abstract: The paper develops a comparative analysis, among selected European Union Member States, of the investment demand, for farm buildings and machinery and equipment, of a sample of specialised arable crop farms as determined – inter alia – by different types and levels of Common Agricultural Policy (CAP) support. The empirical analysis investigates the role of long and short run determinants of investment levels as well as accounts for the presence of irregularities in the cost adjustment function due to the existence of threshold-type behaviours. Throughout the estimated models a consistent and significant long-run dynamic adjustment towards lower levels of the farms’ capital stocks is detected. The effect of CAP support on both types of investments is positive, although seldom significant. The elasticities of average net investment with respect to CAP payments are employed to simulate the effects of the recently proposed, reductions in the Pillar I CAP Direct Payments (DPs). Since these reform options imply, almost exclusively, a reduction in the level of support granted through DPs, simulated effects largely respect the expectation of a worsening of the farm investment prospects for both asset types (i.e., a larger negative investment or a smaller positive one). Notable exceptions concern investment in machinery and equipment in France and Italy which improve, irrespectively of the magnitude of the implemented cuts in DPs.

Keywords: Agricultural and Food Policy; Demand and Price Analysis; International Relations/Trade (search for similar items in EconPapers)
Pages: 25
Date: 2013
New Economics Papers: this item is included in nep-agr and nep-eur
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Related works:
Working Paper: CAP Effects on Agricultural Investment Demand in Europe (2013)
Working Paper: CAP Effects on Agricultural Investment Demand in Europe (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:ags:aaea13:150619

DOI: 10.22004/ag.econ.150619

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