Research
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Price Formation and Agricultural Land Markets
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Structural Change in the German Dairy Sector
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Dynamic Efficiency and Structural Change in Agriculture
more research projects: Forschungsdatenbank der Humboldt-Universität
Price Formation and Agricultural Land Markets
Land is a crucial production factor in agriculture. In developed countries this input factor is usually in short supply and its overall availability shrinks permanently. On the contrary, the increasing demand of growing farms and more recently of non-agricultural investors causes price pressure on the land market. Thus, it is not surprising that land prices increased in recent years. Though the analysis of land markets is a core topic in agricultural economics, many questions are still unanswered. For example, do land prices reflect the price boom for agricultural commodities and bio-energy? Can land prices be fully explained by fundamental factors or are they also driven by speculative bubbles? What is the role of non-agricultural investors? Should land markets be regulated and if so, what are the most efficient instruments?
Against this background the project aims at understanding the recent developments on land markets, particularly in Germany and the EU. The focus will be on quantitative modelling and empirical (econometric) analyses.
Contact: Prof. Dr. Silke Hüttel, Prof. Dr. Martin Odening
silke.huettel(at)agrar.hu-berlin.de, m.odening(at)agrar.hu-berlin.de
Structural Change in the German Dairy Sector
The European Union is the largest milk producer in the world and the EU dairy sector is one of Europe’s most important farming sectors. This sector reflects both, the complexity of agricultural production in highly regulated markets, as well as a complex system of livestock production. Since 1984 the milk market is regulated by intervention prices and a milk quota scheme. It is conjectured in the literature that the introduction of quantity quotas limits the growth of profitable firms and thereby slows down structural change in an industry.
Since the end of 2007, the milk prices decline drastically. German dairy farmers started protesting against, however, this is not surprising since the German dairy sector plays an important role in the agricultural sectors' value added. Such strong price declines force farms to stop milk production or even to exit the sector. The sector faces a rather strong structural change and this is expected to speed up with the planned milk quota removal in 2014/15. The major aim of this research is to quantify the impact of the milk quota scheme on structural change in order to deduce specific policy recommendations how the expected abolishment of the milk quota scheme in the EU will affect the structural change in the German dairy sector.
Thereby, the presence of the more or less stable share of small (dairy) farms and the particular role of them within structural change is still an enigma. It is commonly known that the net farm exit rate strongly depends on the current share of small farms’ exit rate. However, to our knowledge, the literature does not provide a clear explanation whether small farms represent a transitory state or a stable size category with the ability to survive motivated by considerations other than current profits. Small farms may also benefit from low opportunity costs of fixed factors due to sunk costs.
This research aims in addition to identify the determinants of the abandonment of milk production and explore the potential differences between different scales. The relevant literature offers a large variety determinants such as input and output price levels, price volatility, technical progress, the value of non-farm capital and the value of the milk quota, i.e. the milk quota rent. Also the possibilities to grow also in other production branches, the degree of specialization (sunk costs), a farm successor and the farm specific efficiency are important determinants that need to be tested. Of further interest is the interaction among farms on the land and quota market and the respective impact on farm growth, decline and exit. Based on theoretical considerations the challenge is to show how the identified region-specific interactions can explain regionally differing structural evolvements that even persist over time. The crucial hypothesis that differing dynamics of regional structural change rely on strategic interaction of farms on the market for land and quota is aimed to be tested empirically.
Contact: Prof. Dr. Silke Hüttel
silke.huettel(at)agrar.hu-berlin.de
Cooperation
Dr. Roel Jongeneel, Wageningen University
Dynamic Efficiency and Structural Change in Agriculture
The objective of the research is to investigate the relation between efficiency and structural change in German agriculture. Only efficient farms can be competitive in the long run. Thus it can be conjectured that structural change takes place faster in the presence of inefficient farms. However, in reality differences in economic performance and efficiency are persistent and solid empirical work is necessary for explaining this observed heterogeneity.
From a methodological viewpoint this project contributes to the development of dynamic efficiency models. Based on a dual model of inter temporal decision making a shadow cost approach is used that allows for an econometric estimation of dynamic efficiency under uncertainty.
Contact: Christina Wagner, Rashmi Narayana
christina.wagner(at)agrar.hu-berlin.de, rashmi.nayarana.1(at)agrar.hu-berlin.de
Cooperation: Dr. Werner Kleinhanss, vTI Braunschweig
