Outcomes of farm investment in Central and Eastern Europe: The role of financial public support and investment scale

Abstract

Every economic operator must implement investments to function and develop. The particularities of agriculture are such that governments often choose to intervene with a policy for agricultural investment support. For farms in Central and Eastern European countries, which are affected by capital scarcity and structural problems, it has been particularly essential to undertake modernisation investment measures. The main objective of this paper is to assess agricultural investments while taking into consideration the importance of funds available under the EU’s Common Agricultural Policy (CAP). As the selected measures are investment-oriented, their implementation was (and continues to be) viewed as a source of a sustainable agricultural transformation. The study presented in this paper is unique in that it carries out related cross-country analysis and comparisons, and the research tasks are based on unpublished Farm Accountancy Data Network (FADN) microdata for 5839 selected Central and Eastern European farms in period 2004–2015 (which gives 70,068 cross-section observations), provided by the European Commission’s Directorate-General for Agriculture and Rural Development (DG AGRI). The use of microdata made it possible to employ accurate analytical methods, including Stochastic Frontier Analysis, which, in turn, allowed for analysis of the changes in the farms’ technical efficiency. The study uses two analytical dimensions to identify farm groups according to (i) the use of public funds to co-finance agricultural investment expenditure and (ii) the scale (comprehensiveness) of investments implemented. This study found that the initial production potential becomes a specific determinant of the right strategic decisions (in terms of scale) and of the capacity to implement comprehensive modernisation investments, including those co-financed with investment mechanisms offered under the CAP. The use of the pro-investment CAP mechanisms provided the beneficiaries with the ability to improve their efficiency at a relatively faster pace, while not encouraging them to make excessive investments (it did not result in overinvestment). Another finding is that farms that implemented comprehensive investments were the only ones that improved their technical efficiency over the period studied.