Static Farm Microsimulation Model: Price Impact

Abstract

As a market-based sector, market prices, both for inputs and outputs, play an important (although not necessarily dominant) impact on farm-level incomes. In this chapter, we develop a farm-level static microsimulation model with a focus on farm prices. This model is considered a static microsimulation model, abstracting from policy, behavioural, temporal and spatial complexity, focusing primarily on the interaction between market changes and population structure. Many farms contain multiple enterprises such as multiple crop enterprises, a feed and animal enterprise, a dairy and cattle enterprise. This model is enterprise based in that it allows for an understanding of the drivers of margins at the enterprise level within a farm (dairy, cattle, sheep, tillage, etc.), so that they can be scaled up to farm-level incomes. The model utilises detailed farm accounting data collected as part of the Irish National Farm Survey, a component of the EU Farm Accountancy Data Network. We assess the impact of using a static model in looking at annual price and volume changes, assessing the sensitivity of different generalisations. We consider the impact of exchange rate changes on farm-level incomes as a result of the UK’s decision to leave the EU. We found that the impact was asymmetric, with higher income sectors, such as dairy and cereals increasing and lower income sectors like cattle and sheep decreasing. There were particular income increases at the bottom of the distribution, due to input price falls and the higher reliance on input costs. The net impact of these changes sees a widening income distribution and increasing polarization between dairy and cereals, on the one hand, and cattle and sheep on the other. This has a potentially large impact on future land use mobility.