The impact of single farm payments on technical inefficiency of French crop farms

Abstract

This paper analyses the effect of single farm payments (SFPs) introduced by the Luxembourg agreements (2003) of the Common Agricultural Policy, on the performance of crop farms in Eure-et-Loir, France, over the period 2005–2008. Technical inefficiency scores of these crop farms are first estimated. Then, the estimated technical inefficiency scores are regressed on SFPs received by farmers following a standard two-step procedure. The analysis shows a negative effect of SFPs on the technical inefficiency of Eure-et-Loir farms. This implies that subsidies granted to farms without production restrictions seem to reduce technical inefficiency.

Appendix: Deflation of nominal variables

In this appendix, we present the methodology we used to compute the price indexes used in this paper. The first part is concerned with the output, while the second shows how we have dealt with the input deflators.

Output deflators

To conduct our study, it would have been ideal to have full information on the 24 crops that are surveyed and produced by the farms in Eure-et-Loir. Unfortunately, we only have information on three aggregate outputs, their composition and the UAA of each crop used to construct the three outputs. The information we have on these three aggregate outputs is the value in Euros of cereal crops, industrial crops and other crops. Since we use data for 4 years, we have to deflate the production to obtain comparable quantities over time. The methodology we use to deflate these aggregate outputs makes use of the UAA and crop price indexes to construct farm-specific price indexes.

Cereal crops price index

The variable ‘cereal crops’ in our sample is made of the following components: wheat, durum wheat, spring barley, winter barley, irrigated corn, corn, oat, spring wheat and other cereals. The INSEE publishes the price indexes for the following crops: wheat, durum wheat, spring barley, corn and oat (see INSEE 2015a).¹⁵ However, the INSEE does not have price index for winter barley, irrigated corn, spring wheat and other cereals. Instead, we use the price index of spring barley, the price index of corn, the price index of wheat and the price index of cereal respectively (see INSEE 2015b) since these cereal varieties are relatively close.

The index we used is a weighted sum of the individual crop deflators given by:

$$ {I}_{cer}=\sum_{l=1}^{nc}{w}_l\times {p}_l $$

where w _l  = UAA _l /UAA_cer, UAA _l is the UAA of cereal crop l, UAA_cer is the UAA for all cereal crops, and p _l is the price index of cereal crop l. As mentioned above, there are nine cereals, so nc = 9. We generate farm-specific price indexes by using farm-specific weights in the calculation of the index. Obviously, this is well defined only for farms producing cereals. This composite index is the deflator of the variable ‘cereal crops’. The price indexes used are reported in Table 8.

Table 8 Price indexes of cereal crops

Industrial crops price index

The variable ‘industrial crops’ includes the following produces: protein pea, beet, potato, rapeseed, sunflower, flax, poppy, lucerne and other industrial crops. The INSEE publishes the price indexes for the following crops: protein pea, beet, potato, rapeseed, sunflower, poppy, flax and lucerne (see INSEE 2015e, f). We do not have a price index for ‘other industrial crops’. However, its contribution to the variable industrial crops is negligible (the share of the utilised agricultural area for this produce is 1.2349% of the total utilised agricultural area of industrial crops and 0.5970% of the whole utilised agricultural area). Consequently, we have decided to ignore it in the computation of the price index of industrial crops. To compute the composite index, we use the formula similar to the one for the cereal crop composite price index. This composite price index is the deflator of the variable ‘industrial crops’. The price indexes used are reported in Table 9.

Table 9 Price indexes of industrial crops

Other crops price index

‘Other crops’ is the last output variable. It is made of fodder, fruits, vegetables (beans, peas and other vegetables) and horticulture. Price indexes for these produce are available from the INSEE (see INSEE 2015g). The computation of the composite price index follows the process presented above for cereal and industrial crops. The composite index obtained is the deflator of the variable other crops. The price indexes used are reported in Table 10:

Table 10 Price indexes of other crops

Inputs deflators

The variable ‘materials’ is deflated using its corresponding price index, obtained from the INSEE (see INSEE 2015c). This price index captures the price of purchasing ‘intermediate consumption’ (e.g. energy, seeds, fertilisers, plant protection products). The variable ‘capital’ is deflated using the price index of fixed capital consumption (harvesting equipment, tractors, farm buildings etc.). This index is also available from the INSEE (see INSEE 2015d). Note that the variable ‘decoupled subsidies’ is also deflated using the price index of intermediate consumption. This index is chosen because these subsidies are generally used to cover farms’ operational costs. These indexes are reported in Table 11:

Table 11 Input price indexes