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Structural Adjustment of Estonian Agriculture – the Role of Institutional Changes and Socioeconomic Factors of Farm Growth, Decline and Exit

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Structural Adjustment of Estonian Agriculture – the Role of Institutional Changes and Socioeconomic Factors of Farm Growth, Decline and Exit STRUCTURAL ADJUSTMENT OF ESTONIAN AGRICULTURE – THE ROLE OF INSTITUTIONAL CHANGES AND SOCIOECONOMIC FACTORS OF FARM GROWTH, DECLINE AND EXIT EESTI PÕLLUMAJANDUSE STRUKTURAALNE KOHANEMINE – INSTITUTSIONAALSETE MUUTUSTE JA PÕLLUMAJANDUSETTEVÕTETE KASVU, KAHANEMIST NING TEGEVUSE LÕPETAMIST MÕJUTAVATE SOTSIAAL- MAJANDUSLIKE TEGURITE OSA ANTS-HANNES VIIRA A Thesis for applying for the degree of Doctor of Philosophy in Agricultural Economics and Management Väitekiri filosoofiadoktori kraadi taotlemiseks maamajanduse ökonoomika erialal Tartu 2014 EESTI MAAÜLIKOOL ESTONIAN UNIVERSITY OF LIFE SCIENCES STRUCTURAL ADJUSTMENT OF ESTONIAN AGRICULTURE – THE ROLE OF INSTITUTIONAL CHANGES AND SOCIOECONOMIC FACTORS OF FARM GROWTH, DECLINE AND EXIT EESTI PÕLLUMAJANDUSE STRUKTURAALNE KOHANEMINE – INSTITUTSIONAALSETE MUUTUSTE JA PÕLLUMAJANDUSETTEVÕTETE KASVU, KAHANEMIST NING TEGEVUSE LÕPETAMIST MÕJUTAVATE SOTSIAAL- MAJANDUSLIKE TEGURITE OSA ANTS-HANNES VIIRA A Thesis for applying for the degree of Doctor of Philosophy in Agricultural Economics and Management Väitekiri fi losoofi adoktori kraadi taotlemiseks maamajanduse ökonoomika erialal Tartu 2014 Institute of Economics and Social Sciences Estonian University of Life Sciences According to verdict No 175 of April 28, 2014, the Doctoral Committee of the Agricultural and Natural Sciences of the Estonian University of Life Sciences has accepted the thesis for the defence of the degree of Doctor of Philosophy in Agricultural Economics and Management. Opponent: Dr. Minna Väre MTT Economic Research Supervisors: Prof. Rando Värnik Estonian University of Life Sciences Dr. Reet Põldaru Estonian University of Life Sciences Defence of the thesis: Estonian University of Life Sciences, room 104, Kreutzwaldi 1A, Tartu, on June 5, 2014, at 10:00. The English language was edited by Dan O’Connell and Estonian by Urve Ansip. Publication of this thesis is supported by the Estonian University of Life Sciences. © Ants-Hannes Viira, 2014 ISBN 978-9949-536-31-3 (trükis) ISBN 978-9949-536-32-0 (pdf) CONTENTS LIST OF ORIGINAL PUBLICATIONS .................................................7 ABBREVIATIONS .......................................................................................8 1. INTRODUCTION ...................................................................................9 2. REVIEW OF THE LITERATURE ..................................................12 2.1. Studies of structural changes in agriculture ...............................12 2.2. The role of institutional changes in the agricultural transition .....................................................................14 2.3. Factors affecting farm growth, decline, continuation and exit ..16 2.4. Discrepancies between stated intentions and actual behaviour ..............................................................................20 3. AIMS OF THE STUDY ........................................................................24 4. MATERIAL AND METHODS ..........................................................26 4.1. Data ....................................................................................................26 4.1.1. Data collection.......................................................................26 4.1.2. Defi nitions of variables .......................................................28 4.2. Methods .............................................................................................33 4.2.1. Cluster analysis ......................................................................33 4.2.2. Binary logistic and ordered logistic regression ...............34 4.2.3. Multinomial logistic regression ..........................................35 4.2.4. Recursive bivariate probit regression ................................36 5. RESULTS AND DISCUSSION ...........................................................39 5.1. Adaptation and development of Estonian agriculture in response to institutional, market and policy changes from 1988–2012 ........................................................................................39 5.2. Dualistic farm structure .................................................................46 5.3. Factors affecting continuation or exit from farming, and farm decline or growth ................................................................................49 5.4. Discrepancies between stated intentions and actual behaviour of Estonian farm operators in the context of farm growth, decline, continuation and exit .......................................................61 6. CONCLUSIONS ......................................................................................66 REFERENCES ............................................................................................69 SUMMARY IN ESTONIAN ....................................................................84 ACKNOWLEDGEMENTS......................................................................99 ORIGINAL PUBLICATIONS ...............................................................101 CURRICULUM VITAE...........................................................................168 ELULOOKIRJELDUS ............................................................................171 LIST OF PUBLICATIONS .....................................................................174 6 LIST OF ORIGINAL PUBLICATIONS The thesis is based on following publications, which are referred to by their Roman numerals in the text: I Viira, A.-H., Põder, A., Värnik, R. 2009. 20 years of transition – institutional reforms and the adaptation of production in Estonian agriculture. German Journal of Agricultural Economics, 58 (7), 294–303. II Viira, A.-H., Põder, A., Värnik, R. 2009. The factors affecting the motivation to exit farming – evidence from Estonia. Food Economics – Acta Agriculturae Scandinavica, Section C, 6 (3), 156– 172. III Viira, A.-H., Põder, A., Värnik, R. 2013. The Determinants of Farm Growth, Decline and Exit in Estonia. German Journal of Agricultural Economics, 62 (1), 52–64. IV Viira, A.-H., Põder, A., Värnik, R. 2014. Discrepancies between the Intentions and Behaviour of Farm Operators in the Contexts of Farm Growth, Decline, Continuation and Exit – Evidence from Estonia. German Journal of Agricultural Economics, 63 (1), 46–62. The papers in the thesis are reproduced with kind permissions from the publishers. The contributions from the authors to the papers are as follows: Original idea Data Manuscript Paper and structure collection Data analysis preparation I All AHV, AP AHV, AP All II All All AHV, AP All III All AHV, AP AHV, AP All IV All AHV, AP AHV, AP All AHV – Ants-Hannes Viira; AP – Anne Põder; RV – Rando Värnik; All – all authors of the paper. 7 ABBREVIATIONS ARIB Estonian Agricultural Registers and Information Board – Estonian paying agency of agricultural subsidies CEEC Central and Eastern European Countries CA Cluster analysis CAP Common Agricultural Policy of the European Union ESU Economic size unit defi ned for the purpose of the Farm Accountancy Data Network (FADN). FADN Farm Accountancy Data Network FAOSTAT The Statistics Division of the Food and Agriculture Organization of the United Nations (FAO) LFA Less favoured areas OECD The Organisation for Economic Co-operation and Development PCA Principal component analysis PSE Producer support estimate SAPARD Special Accession Programme for Agriculture and Rural Development SO Standard output of the farm as defi ned in the Commission Regulation (EC) No. 1242/2008 TPB Theory of planned behaviour TRA Theory of reasoned action 8 1. INTRODUCTION In Western countries, changes in farm structures have been of interest for agricultural economists, rural sociologists, policy makers and society at large for decades. One of the key issues in these debates has been the livelihood and survival of family farms, which, in Western Europe, have been the prevailing form of agricultural producers. A characteristic feature of the farming sector, as opposed to most sectors of the economy, is that enterprises are traditionally passed on within families. Families own the land and capital of farms, manage farms, provide and reproduce farm labour, and consume part of the farm’s production (Gasson and Errington, 1993; Boehlje, 1999; Glauben et al., 2004; Johnsen, 2004). Technological development has dramatically reduced labour requirements in modern agriculture, and the development of other economic sectors has provided jobs for employees released from agriculture. While the terms of trade for agricultural products has been deteriorating for decades, and income levels in non-agricultural employment relative to agricultural employment have increased, family farms, in order to sustain livelihood for the family, have increased in size (Levins and Cochrane, 1996). Due to the limited availability of agricultural land, these processes have implied a decrease in the number of farms and an increase in average farm size. At the same time, the trend of increasing farm size and capital requirements have increased the barriers for new entrants (Boehlje, 1973; Huffmann and Evenson, 2001). Since the Second World War, European agriculture has been strongly infl uenced by agricultural policies. The integration of Europe into the EU has increased the role of the Common Agricultural Policy (CAP) in the agricultural development of the EU member states, and also their trade partners. Since the MacSharry reform in 1992, the CAP has become less and less distortive to agricultural markets (Ritson and Harvey, 1997; Burrell and Oskam, 2000; Greer, 2005;
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