1. 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

2. 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?

3. 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

4. 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

5. Coverage Cross section for 2004 8 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

6. 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

7. Factor content in farm output in 2004 2.1 Factor content in farm output

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

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

10. 2.2 Factor content in agricultural trade The direction of trade in factor services: agricultural commodities in 2004

11. Net trade of factor services: agricultural commodities in 2004 2.2 Factor content in agricultural trade

12. Farm structure and the content of factor services in agricultural trade in 2004 2.2 Factor content in agricultural trade and farm structure

13. 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

14. Farm organisation and size in CEE in 2004 3.1 Farm organisation and production technology

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

16. Productivity and labour intensity by farm type in 2004 3.1 Farm organisation and production technology

17. The relative endowment of CEE's with land, capital and labour in 2004 3.1 Factor endowment

18. Labour content in agricultural goods at farm gate in CEE, 2004 3.1 Factor endowment

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

20. 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

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

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

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

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

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

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

27. 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

28. 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

29. Thank you for attention!

30. Output share and profitability of cereal, oilseed and protein crop production by region in 2004 3.3 Transaction costs of inter-industry (re)specialisation

31. The classification of sectors based on FADN