comparative advantages, transaction costs and factor content in agricultural trade: empirical...
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Comparative Advantages, Transaction Costs and Factor Content in Agricultural Trade:
Empirical Evidence from the CEE
Pavel Ciaian, d'Artis Kancs and Jan Pokrivcak
Work in progress!
Catholic University of LeuvenSlovak University of Agriculture
Background
1 Introduction
• Factor content in the agricultural good trade little researched yet;virtually no studies on factor content in the CEE trade
• Because of high share of agriculture in GDP and employmentfactor content in agricultural trade more important in CEEthan in developed countries
• There is evidence that transaction costs and market imperfectionsdistort CEE respecialisation and reorganisation from central planning to market economies (e.g. Ciaian and Swinnen AJAE 2006)Do they also affect the specialisation and the pattern of trade?
Objectives
1 Introduction
• Examine factor content in the CEE agricultural goods
• Farm output
• International trade
• Examine the potential role of transaction costs and market imperfections
• The potential role of transaction costs in determiningfarm output
• The potential role of transaction costs in determiningagricultural trade
Data
• Farm Accountancy Data Network (FADN)Agricultural production data by farm type, region and sector
• GTAP Data BaseTrade and consumption data, and input-output coefficients
• COMEXT (Eurostat)External trade between all EU member states and withnon-member countries in CN, SITC Rev2, SITC Rev3
1 Introduction
Coverage
• Cross section for 2004
• 8 CEE accession countries (Czech Republic, Estonia, Hungary,Latvia, Lithuania, Poland, Slovakia and Slovenia)
• 66 FADN regions
• 7 sectors (cereals, oilseed and protein crops; root crops andtechnical crops; horticulture; permanent crops; milk; grazing livestock;sheep and goats; pigs/poultry) + rest of agriculture
1 Introduction
Factor content in agricultural goodsof CEE transition countries
2 Factor content in the CEE agricultural goods
• Examine factor content in farm output
• Examine factor content in agricultural trade
• Imports and exports of factor services
• Net trade of factor services
Factor content in farm output in 2004
Land Labour Capital
Czech R. 2.5 22.0 75.5
Estonia 0.9 21.2 77.9
Latvia 1.8 19.6 78.6
Lithuania 3.2 25.7 71.1
Hungary 4.6 17.9 77.5
Poland 2.8 21.1 76.1
Slovenia 1.7 35.5 62.7
Slovakia 3.0 15.9 81.0
Percentage share in total costs. Source:Own
calculations based on the FADN (2008) data.
2.1 Factor content in farm output
Labour and land ratio in agriculturalgoods and farm structure in CEE
CZE
SVK
SVN
POL
LTU
LVA
ESTHUN
SVN
POL
LTU
EST
LVA
CZE
SVK
HUN
Labour/ha = 0.047x2 - 3.9851x + 123.58
R2 = 0.80470
50
100
150
200
250
0 20 40 60 80 100 120IF share in land use, %
Lab
ou
r p
er h
a in
pro
du
ctio
n
0
0.2
0.4
0.6
0.8
UA
A p
er c
apit
a, h
a
Labour/ha UAA per capita (ha)
2.1 Factor content in farm output and farm structure
Labour content in agricultural goodsand farm structure in CEE
HUN
EST
LVA LTU
POL
SVN
SVK
CZE
HUN
SVKCZE
LVA
EST
LTU
POL
SVN
Labour share = 0.1606x + 23.333
R2 = 0.6064
15
20
25
30
35
40
45
0 20 40 60 80 100 120
IF share in land use, %
Lab
ou
r sh
are
in p
rod
uct
ion
0.2
0.3
0.4
0.5
0.6
0.7
0.8
UA
A p
er c
apit
a, h
a
Labour cost share UAA per capita (ha)
2.1 Factor content in farm output and farm structure
Land Labour Capital
Imports Exports Imports Exports Imports Exports
Czech R. 2.4 3.0 31.8 26.1 65.9 70.9
Estonia 0.9 1.0 27.2 25.6 72.0 73.4
Latvia 2.1 2.5 27.6 26.3 70.3 71.2
Lithuania 3.1 3.2 25.8 24.0 71.1 72.8
Hungary 4.1 4.3 22.0 20.4 73.9 75.3
Poland 3.3 3.0 23.9 24.0 72.8 73.0
Slovenia 2.8 2.5 30.7 29.8 66.5 67.8
Slovakia 3.4 4.0 15.2 16.6 81.4 79.4
Percentage share in total costs. Source:Own calculations based on
GTAP (2008) and Eurostat (2007) data.
2.2 Factor content in agricultural trade
The direction of trade in factor services:agricultural commodities in 2004
Net trade of factor services:agricultural commodities in 2004
Cze
ch R
.
Est
onia
Latv
ia
Lith
uani
a
Hun
gary
Pol
and
Slo
veni
a
Slo
vaki
a
Land 0.19 (0.36)
Labour -1.43 (2.04)
Capital 1.24 (1.93)
-6.0
-4.0
-2.0
0.0
2.0
4.0
6.0
Net
fac
tor
trad
e, % Land 0.19 (0.36)
Labour -1.43 (2.04)
Capital 1.24 (1.93)
2.2 Factor content in agricultural trade
Farm structure and the content of factor services in agricultural trade in 2004
HUN
ESTLVA
LTUPOL
SVN
SVK
CZE
CZE
SVK
HUN
LVAEST
LTU POL
SVN
y (imports) = 0.0008x + 0.3026
R2 = 0.0942
y (exports) = 0.0012x + 0.255
R2 = 0.3491
0.15
0.2
0.25
0.3
0.35
0.4
0.45
0.5
0 20 40 60 80 100 120IF share in land use, %
Lab
ou
r/ca
pit
al-l
and
rat
io i
n t
rad
e
Imports Exports Trend (imports) Trend (exports)
2.2 Factor content in agricultural trade and farm structure
The potential role of transaction costsand market imperfections in determining
trade of factor services
3 The role of transaction costs and market imperfections
• Examine the potential role of transaction costs and marketimperfections in determining farm production
• Examine the potential role of transaction costs and marketimperfections in determining agricultural trade
Farm organisation and size in CEE in 2004
IF share land IF share output Average farm size
% % ha
Czech R. 11.8 19.5 250.1
Estonia 63.5 48.9 119.6
Latvia 55.2 63.9 64.0
Lithuania 77.4 83.8 42.5
Hungary 36.2 47.5 53.2
Poland 94.5 96.2 15.8
Slovenia 99.9 99.9 12.7
Slovakia 10.8 13.6 535.5
Source:Own calculations based on the FADN (2008) data.
3.1 Farm organisation and production technology
Factor intensity differences in productiontechnology between IF and CF
CF IF
2.3
7.7
17.3
7.1
14.1 14.0
6.9
0
12
24
36
48
60
Cereals,oilseed &protein
Root &technical
crops
Horticulture Permanentcrops
Milk Grazinglivestock
Pigs &poultry
Lab
ou
r/ca
pit
al
rati
o,
%
3.1 Farm organisation and production technology
Productivity and labour intensityby farm type in 2004
Labour cost share Profitability IF/CF
10% 0.07
10-20% 0.14
20-30% 0.24
30-40% 0.38
40-50% 0.59
50-60% 0.84
60% 1.26
Source:Own calculations based on FADN (2008) data.
3.1 Farm organisation and production technology
The relative endowment of CEE's withland, capital and labour in 2004
Arable land/worker Capital/worker Agricultural labour
Ha Thousand Euro %
Czech Republic 0.36 4.07 9.6
Estonia 0.57 3.41 16.3
Latvia 0.71 3.28 19.5
Lithuania 0.76 2.92 18.0
Hungary 0.58 4.06 17.5
Poland 0.43 4.36 25.8
Slovenia 0.25 6.54 8.4
Slovakia 0.36 3.95 10.7
Source:Own calculations based on the Eurostat (2008) and FAO (2008) data.
3.1 Factor endowment
Labour content in agricultural goodsat farm gate in CEE, 2004
17.1(3.49)
22.7(4.62)
34.6(9.01)
33.9(6.16)
24.8(4.50)
27.9(6.47)
14.6(4.53)
0.0
10.0
20.0
30.0
40.0
50.0
Cereals,oilseed &technical
Root &technical
crops
Horticulture Permanentcrops
Milk Grazinglivestock
Pigs &poultry
Lab
ou
r co
nte
nt
in a
gri
cult
ura
l p
rod
uct
s, %
3.1 Factor endowment
Comparative advantages of farmorganisation and labour endowment
Slovakia
PolandSlovenia
Czech Rep.
Hungary
Lithuania
Latvia
Estonia
0
50
100
0.0 15.0 30.0
Agricultural labour endowment
Share
of
IF f
arm
s, %
3.1 Relative comparative advantages of the CEE’s agriculture
Farm type differences in cereal, oilseedand protein crop production
and productivity in percent, (IF<0<CF)
SVK 6
POL 788
HUN 12
HUN 11
CZE 4100
- 50%
- 30%
- 10%
10%
30%
50%
CF- IF output share CF- IF profitability
3.2 Transaction costs of farm (re)organisation
Farm type differences in root andtechnical crop production
and productivity in percent, (IF<0<CF)
3.2 Transaction costs of farm (re)organisation
HUN 9
CZE 2100
SK 7
HUN 11HUN 12
POL 788
- 50%
- 30%
- 10%
10%
30%
50%
CF- IF output share CF- IF profitability
Farm type differences inhorticultural production
and productivity in percent, (IF<0<CF)
3.2 Transaction costs of farm (re)organisation
CZE 6200
HUN 3
POL 793LVA 11
- 50%
- 30%
- 10%
10%
30%
50%
CF- IF output share CF- IF profitability
Farm type differences inpermanent crop production
and productivity in percent, (IF<0<CF)
3.2 Transaction costs of farm (re)organisation
HUN 3
LVA 11POL 803
HUN 11
POL 788
- 50%
- 30%
- 10%
10%
30%
50%
CF- IF output share CF- IF profitability
Farm type differences inmilk production
and productivity in percent, (IF<0<CF)
3.2 Transaction costs of farm (re)organisation
POL 796
LVA 40
CZE 5100
HUN 12
SVK 6
- 50%
- 30%
- 10%
10%
30%
50%
CF- IF output share CF- IF profitability
Farm type differences ingrazing livestock production
and productivity in percent, (IF<0<CF)
3.2 Transaction costs of farm (re)organisation
CZE 5100
SVK 5
POL 796
CZE 4100
- 50%
- 30%
- 10%
10%
30%
50%
CF- IF output share CF- IF profitability
Farm type differences inpig and poultry production
and productivity in percent, (IF<0<CF)
3.2 Transaction costs of farm (re)organisation
POL 803
POL 789
HUN 14
CZE 5200
- 50%
- 30%
- 10%
10%
30%
50%
CF- IF output share CF- IF profitability
Conclusions
• Factor content in the CEE agricultural trade rather similarbetween exports and imports
• Technological differences and factor endowment are weakdeterminants of agricultural trade in CEE
• Transaction costs can explain a significant portion of mismatchbetween the specialisation pattern suggested by the theory ofcomparative advantages and the specialisation pattern observedin CEE
4 Conclusions and policy implications
Policy implications
• Optimisation in farm organisation would better employ region andcountry comparative advantages (both technology and factorendowment) and hence increase factor rewards
• The agricultural policy in CEE need to be aimed at decreasing transaction costs rather than fixing prices and distorting agricultural, markets or supporting farmers through direct farm payments
4 Conclusions and policy implications
Thank you for attention!
Output share and profitability ofcereal, oilseed and protein crop
production by region in 2004
Sectoral profitability
Region's top profitability
0
15
30
45
60
CZ
E 2
10
0
CZ
E 3
20
0
CZ
E 4
20
0
CZ
E 5
20
0
CZ
E 6
10
0
CZ
E 7
10
0
CZ
E 8
10
0
HU
N 1
3
HU
N 1
1
HU
N 8
HU
N 2
0
HU
N 1
4
HU
N 5
HU
N 1
2
HU
N 1
5
HU
N 3
HU
N 6
LVA
11
LVA
20
LVA
40
LVA
52
PO
L 7
87
PO
L 7
89
PO
L 7
92
PO
L 7
94
PO
L 7
97
PO
L 7
99
PO
L 8
02
PO
L 8
04
SV
K 2
SV
K 4
SV
K 6
SV
K 8
Sh
are
of
cere
als
and
oilsee
d, %
0
30
60
90
120
Pro
fita
bilit
y,
%
3.3 Transaction costs of inter-industry (re)specialisation
The classification of sectors based on FADNSector FADN classification
Cereals, oilseed and protein crops 13. Specialist cereals, oilseed, protein crops
Root crops and technical crops 141. Specialist root crops
142. Cereals and root crops combined
143. Specialist field vegetables
144. Various field crops
Horticulture 201. Specialist market garden vegetables
202. Specialist flowers and ornementals
203. Generalmarket garden cropping
Permanent crops 31. Specialist vineyards
32. Specialist fruit and citrus fruit
33. Specialist olives
Milk 41. Specialist dairying
Grazing livestock 42. Specialist cattle-rearing and fattening
43. Cattle-dairying, rearing and fattening
44. Sheep, goats and other grazing livestock
Pigs and poultry 50. Specialist granivores (pigs and poultry)
Rest of agriculture 60-82. Rest of agricultural activities
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