Comparative Advantages, Transaction Costs and Factor Content in Agricultural Trade: Empirical Evidence from the CEE Pavel Ciaian, d'Artis Kancs and Jan Pokrivcak Work in progress! Catholic University of Leuven Slovak University of Agriculture

Background 1 Introduction Factor content in the agricultural good trade little researched yet; virtually no studies on factor content in the CEE trade Because of high share of agriculture in GDP and employment factor content in agricultural trade more important in CEE than in developed countries There is evidence that transaction costs and market imperfections distort CEE respecialisation and reorganisation from central planning to market economies (e.g. Ciaian and Swinnen AJAE 2006) Do they also affect the specialisation and the pattern of trade?

Objectives 1 Introduction Examine factor content in the CEE agricultural goods Farm output International trade Examine the potential role of transaction costs and market imperfections The potential role of transaction costs in determining farm output The potential role of transaction costs in determining agricultural trade

Data Farm Accountancy Data Network (FADN) Agricultural production data by farm type, region and sector GTAP Data Base Trade and consumption data, and input-output coefficients COMEXT (Eurostat) External trade between all EU member states and with non-member countries in CN, SITC Rev2, SITC Rev3 1 Introduction

Coverage Cross section for CEE accession countries (Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Slovakia and Slovenia) 66 FADN regions 7 sectors (cereals, oilseed and protein crops; root crops and technical crops; horticulture; permanent crops; milk; grazing livestock; sheep and goats; pigs/poultry) + rest of agriculture 1 Introduction

Factor content in agricultural goods of CEE transition countries 2 Factor content in the CEE agricultural goods Examine factor content in farm output Examine factor content in agricultural trade Imports and exports of factor services Net trade of factor services

Factor content in farm output in Factor content in farm output

Labour and land ratio in agricultural goods and farm structure in CEE 2.1 Factor content in farm output and farm structure

Labour content in agricultural goods and farm structure in CEE 2.1 Factor content in farm output and farm structure

2.2 Factor content in agricultural trade The direction of trade in factor services: agricultural commodities in 2004

Net trade of factor services: agricultural commodities in Factor content in agricultural trade

Farm structure and the content of factor services in agricultural trade in Factor content in agricultural trade and farm structure

The potential role of transaction costs and market imperfections in determining trade of factor services 3 The role of transaction costs and market imperfections Examine the potential role of transaction costs and market imperfections in determining farm production Examine the potential role of transaction costs and market imperfections in determining agricultural trade

Farm organisation and size in CEE in Farm organisation and production technology

Factor intensity differences in production technology between IF and CF 3.1 Farm organisation and production technology

Productivity and labour intensity by farm type in Farm organisation and production technology

The relative endowment of CEE's with land, capital and labour in Factor endowment

Labour content in agricultural goods at farm gate in CEE, Factor endowment

Comparative advantages of farm organisation and labour endowment 3.1 Relative comparative advantages of the CEE’s agriculture

Farm type differences in cereal, oilseed and protein crop production and productivity in percent, (IF<0<CF) 3.2 Transaction costs of farm (re)organisation

Farm type differences in root and technical crop production and productivity in percent, (IF<0<CF) 3.2 Transaction costs of farm (re)organisation

Farm type differences in horticultural production and productivity in percent, (IF<0<CF) 3.2 Transaction costs of farm (re)organisation

Farm type differences in permanent crop production and productivity in percent, (IF<0<CF) 3.2 Transaction costs of farm (re)organisation

Farm type differences in milk production and productivity in percent, (IF<0<CF) 3.2 Transaction costs of farm (re)organisation

Farm type differences in grazing livestock production and productivity in percent, (IF<0<CF) 3.2 Transaction costs of farm (re)organisation

Farm type differences in pig and poultry production and productivity in percent, (IF<0<CF) 3.2 Transaction costs of farm (re)organisation

Conclusions Factor content in the CEE agricultural trade rather similar between exports and imports Technological differences and factor endowment are weak determinants of agricultural trade in CEE Transaction costs can explain a significant portion of mismatch between the specialisation pattern suggested by the theory of comparative advantages and the specialisation pattern observed in CEE 4 Conclusions and policy implications

Policy implications Optimisation in farm organisation would better employ region and country comparative advantages (both technology and factor endowment) and hence increase factor rewards The agricultural policy in CEE need to be aimed at decreasing transaction costs rather than fixing prices and distorting agricultural, markets or supporting farmers through direct farm payments 4 Conclusions and policy implications

Thank you for attention!

Output share and profitability of cereal, oilseed and protein crop production by region in Transaction costs of inter-industry (re)specialisation

The classification of sectors based on FADN