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1 Analysis of Competitiveness of German Agriculture based on FADN data Thünen Institute of Farm Economics GCI = FNI > = 1 OC w + OC l + OC c < Page IAFE-NRI 0 Conference Werner Kleinhanss CAP and Competitiveness of the Polish and European food IAFE-NRI sector, Conference Józefów (PL),

2 1 Introduction Competitiveness is a rather complex question dealing with interactions between firms, sectors, national and global economies, etc. Measurement concepts are market shares, productivity changes and economic performance indicators. Depperu and Cerrato (2010): Profitability is generally considered the most important measure of competitive success... Page 1

3 Structure 1. Introduction 2. Data an Method 3. Results Distribution of profit and opportunity costs Distribution between Global Competitive Index (GCI) classes sector level by farm types organisational forms and regions 4 Summary and conclusions Page 2

4 2 Method and data Working hypothesis: generating income is necessary to remunerate own factors of production, financing net investments for farm growth and innovations. If the profit is greater than factor costs entrepreneurs are able to compete and stay in business, otherwise they could try to adjust or go out of business and using the factors otherwise. Page 3

5 The Global Competitive Index (GCI) (Gallardo, 2001) Relation between profit and opportunity costs of own factors GCI = FNI > = 1 OC w + OC l + OC c < < 1 partial,. >= 1 full compensation of family owned factors Classification wrt GCI into 4 groups: Negative income (GCI1) 0 < GCI < 1 (GCI2) 1 <= GCI < 2 (GCI3) GCI >= 2 (GCI4) Page 4

6 Data Data: German national FADN data 2004/5 to 20 Sample of farms by main farming types (excl. Horticulture, Permanent crops and Wine due to problems in valuation of opportunity costs for land) Income indicator: Profit, similar to Farm Net Income (FNI) Opportunity costs(oc) of own factors derived by regions (Länder) and main farming types Land based on rental prices of land rented Labor based on labor costs of salaried workers Capital based of interest rates Aggregation at sector level using farm individual weighting factors Page 5

7 3 Results Distribution of income, subsidies and opportunity costs Results by sector, farm type and regions Modification of Direct Payments Page 6

8 Distribution of UAA; direct payments and income (FNI) by regions (represented by the sample) UAA Direct payments FNI /6 2004/5 5/6 Mio hectares bn bn East South Centre North /6 Page 7

9 Development / distribution of FNI and share of farms by GCI classes - sector FNI Share of farms % 8 90% 80% 6 70% 60% bn % 40% 30% 20% 10% Balance FNI>2*OC (GCI4) FNI>OC (GCI3) FNI<OC (GCI2) FNI_neg (GCI1) /5 5/6 0% 2004/5 5/6 Page 8

10 Development of opportunity costs of farm owned factors by GCI classes - sector bn FNI>2*OC (GCI4) FNI>OC (GCI3) FNI<OC (GCI2) FNI_neg (GCI1) 2004/5 5/6 Page 9

11 Relation between income and opportunity costs - sector level 10 8 FNI Opportunity costs /5 5/6 2004/5 5/6 2004/5 5/6 2004/5 5/6 2004/5 5/6 bn Germany FNI_neg (GCI1) FNI<OC (GCI2) FNI>OC (GCI3) FNI>2*OC (GCI4) Page 10

12 Size of farms (ha UAA) in the different GCI classes Individual farms All FNI_neg (GCI1) FNI<OC (GCI2) FNI>OC (GCI3) FNI>OC*2 (GCI4) /5 5/6 Page 11

13 Development, distribution and balance (FNI minus opportunity costs ) Arable farms (aggregated) 2,0 1,5 1,0 Balance FNI>2*OC (GCI4) FNI>OC (GCI3) FNI_neg (GCI1) FNI<OC (GCI2) bn 0,5 0-0,5-1,0 2004/5 5/6 Page 12

14 Development, distribution and balance (FNI minus opportunity costs) Dairy farms (aggregated) 2,0 1,5 1,0 Balance FNI>2*OC (GCI4) FNI>OC (GCI3) FNI_neg (GCI1 FNI<OC (GCI2) bn 0,5 0,0-0,5-1,0 2004/5 5/6 Page 13

15 Development of balance (FNI minus opportunity costs) by farm types 2,0 1,5 Crops Dairy Other Cattle Pig & Poultry Mixed 1,0 bn 0,5 0,0-0,5 2004/5 5/6 Page 14

16 by farm types High performance of arable farms due to favourable market prices redistribution of direct payments under decoupling via regional flat rates Mixed and pig farms slightly positive High variation of performance of dairy farms with (+) balances beside the economic crisis (-) balance for other cattle farms in all the years (negatively affected by decoupling) Page 15

17 Development of balance (FNI minus opportunity costs) by regions 1,5 1,0 North Centre South East 0,5 bn 0-0,5-1,0 2004/5 5/6 Page 16

18 by regions (+) but high variation in region North (+) balance in region East Close to zero in region Centre Less favourable conditions in the South in half of the period, due to high opportunity costs (land rental prices, small farms) Page 17

19 Development and balance of FNI minus opportunity costs by organizational forms (region East) 0,5 0,4 0,3 Crops Dairy Other Cattle Pig & Poultry Mixed bn 0,2 0,1 0-0,1 2004/5 5/6 2004/5 5/6 Individual Farms / Partnerships Legal Entities Page 18

20 Development and balance of FNI minus opportunity costs by farm types (West) 1,0 0,8 0,6 Crops Dairy Other Cattle Pig & Poultry Mixed 0,4 2004/5 5/6 2004/5 5/6 2004/5 5/6 bn 0,2 0,0-0,2-0,4 North Centre South Page 19

21 region West (individual farms) (+) balance of arable farms Dairy farms (+) in region North (+/-) in region South (structure high opportunity costs Pigs & poultry Variation of balance close to zero (influenced by pig price cycles and rising feed costs Page 20

22 Share of farms with at last full remuneration of opportunity costs Share of farms (%) All Farms Crops Dairy Other cattle Pig & poultry Mixed 2004/5 5/6 Page 21

23 Influence of Direct Paments on the share of farms with full remuneration of opportunity cost (averages) Base DP-100% /6 Page 22

24 4 Conclusions About 10 % of farms with negative FNI (5%), unable to sustain in the medium term (structural change) About half of farms with partial compensation of opportunity costs Strong competitiveness of arable farms due to size, high market prices and decoupled payments Less favourable conditions for livestock production Dairy farms with good performance in the North, but less in the South, high variation Page 23

25 Conclusions (2) Worse competitiveness of other cattle farms, unable to sustain in the long term Balance in pig & poultry farms (+) with but variations due to changes of market prices and feed costs Competitiveness significantly depending on direct payments phasing out of DP would negatively affect the remuneration of factors and hence competitiveness Page 24

26 Source GALLARDO, R., RAMOS, F, RAMOS, E (2001): THE FARM STRATEGY APPROACH TOWARDS COMPETITIVENESS UNDER THE CAP REFORMS. THE CASE OF ANDALUSIA IN SOUTHERN SPAIN. Xth European Association of Agricultural Economists Congress. x20r.x20gallardox2cx20f.x20ramosx2cx20e.x20ramos.pdf Depperu, D. Cerrato, D: ANALYZING INTERNATIONAL COMPETITIVENESS AT THE FIRM LEVEL: CONCEPTS AND MEASURES DAQFjAB&url=http%3A%2F%2Fwww.researchgate.net%2Fpublication%2F _Analyzing_international_competitiveness_at_the_firm_level_concepts_ and_measures%2flinks%2f02e7e52031fae &ei=1nnyvmwpbilt7 Qa-noGQAQ&usg=AFQjCNFfnn_CJNs1pN9Dbk5gXVBSbhgvA&bvm=bv ,d.ZGU Page 25

27 Annex Page 26

28 Development of income (FNI) by GCI classes sector 10 8 Balance FNI>2*OC (GCI4) FNI>OC (GCI3) FNI<OC (GCI2) FNI_neg (GCI1) 6 bn /5 5/6 Page 27

29 Development and distribution of FNI (-) OC Pig & poultry farms (aggregated) 0,6 0,4 0,2 bn 0,0-0,2-0,4-0,6 Balance FNI>2*OC (GCI4) FNI>OC (GCI3) FNI_neg (GCI1 FNI<OC (GCI2) ) 2004/5 5/6 Page 28

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