The impact of policy regimes on the size distribution of farms in the U.S.A. and the E.U. a Markov chain-maximum entropy analysis
2009
Pappa, T.
The question of the research is how the farm size structure in the United States and the European Union responds to changes in the Farm Bills and the Common Agricultural Policy (CAP) respectively. Using Markov chain analysis, we analyze the size distribution of farms among seven size categories, which are distinguished according to the net farm income by value of size class for the U.S.A. and nine size categories distinguished according to the economic size of farm, ESU, for the E.U. The Maximum Entropy formalism, which is a non-conventional estimation technique suitable for dealing with "ill-posed" problems, was applied in order to recover the Transition Probability Matrices. The farm size projections showed that the total number of farms will continue to decline both in the U.S.A and the E.U. According to the eigenvalues we can assume that the implementation of the policy reforms drives the smaller size farms to extinction, while it helps farms of medium and large size to gain more and more power in infinite time both in the U.S.A and the E.U. With respect to the Farm Bills, results point out that the Farm Security and Rural Investment Act of 2002 had the biggest impact on the farm size evolution in the United States, since its application in contrast to the application of the other Farm Bills offered a more uniform distribution to the size categories. For the same reason the application of the Mid-Term Review (MTR) of Agenda 2000 reform had the biggest impact on the evolution of farm size categories in the European Union.
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