MARKET VERSUS AGRICULTURE IN POLAND – MACROECONOMIC RELATIONS OF INCOMES, PRICES AND PRODUCTIVITY IN TERMS OF THE SUSTAINABLE DEVELOPMENT PARADIGM

Bazyli Czyżewski,Adam Majchrzak

doi:10.3846/20294913.2016.1212743

Abstract

In the article macroeconomic relations of prices, productivity and incomes in Polish agriculture in the context of changes in the EU Common Agricultural Policy were studied. The authors have developed a macroeconomic model which explains these relations and confirms the occurrence of market failures in agriculture in Poland. The developed model proves the existence of a puzzling exchangeable relation between the real productivity of production factors in agriculture, and agricultural incomes, under conditions of adaptive expectations. It also proves that it is price scissors, not the efficiency of production, that have a dominating influence on incomes in the sector. The authors propose the hypothesis that correction of market mechanisms by government intervention in agriculture is an objective necessity. However, direct subsidies (area payments) do not have a correcting role, but reinforce King’s effect.

Highlights

The purpose of this article is to study the macroeconomic relations of prices, productivity and incomes in Polish agriculture in the context of changes that have occurred in the European Common Agricultural Policy since the 1990s
On the basis of the graph (Fig. 1) of the variables from Eq (2), it may be stated that there is a high probability of positive correlation of “price gap” and negative correlation of real productivity of production factors with the surplus index
King’s effect occurs with a delay, as a result of adaptive expectations in agriculture. This is an objective premise of state intervention in agriculture, because the effect should be treated as a market failure, which results from the fact that the market is unable to evaluate public goods (Bonini et al 2015)

Summary

Introduction

Is European agriculture responsible for providing food and material to be further processed, but it occupies around 40% of the land As a consequence it has a huge impact on the condition of the environment in rural areas, as well as on possibilities of using the environment (Baldock et al 2010; Hvid 2015). It is a specific feature of public goods related to agriculture and rural areas that they can be an external effect of “regular” agricultural production, a purposive effect or a common supply. Vatn includes among these environmental aspects (landscape, biodiversity, pollution, recreation, cultural heritage, food safety), and protection of food supplies (food security) and aspects connected with the rural lifestyle (settlement models, tradition and culture, local economic and social activities) (Vatn 2001; Fałkowski 2010)

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