Academic journal article Agricultural Economics Review

An Input-Output Approach in Assessing the CAP Reform Impact of Extensive versus Intensive Farming Systems on Rural Development: The Case of Greece

Academic journal article Agricultural Economics Review

An Input-Output Approach in Assessing the CAP Reform Impact of Extensive versus Intensive Farming Systems on Rural Development: The Case of Greece

Article excerpt

Abstract

This paper analyses the role of the extensive versus the intensive farming systems in the regional economy of a Greek rural area, Trikala, and assesses the impact of the shift of land resources from intensive to extensive systems, due to CAP reform. The construction of an input-output table through the GRIT technique is applied for (a) an agriculture-centred multiplier analysis of the farming systems and (b) an impact analysis of the changes in farm land uses on the regional economy, by exogenizing the output of the agricultural farming systems. The results indicate a reduction in the output of the region's economy.

Key words: intensive vs extensive farming systems; CAP reform, rural development; input-output analysis

(ProQuest: ... denotes formulae omitted.)

Introduction

In the Mid-term review of the CAP (2003/2004), the EU took a step towards strengthening the multifunctional role of agriculture by implementing "decoupling", "modulation" and "cross-compliance". In the same period, environmental protection and land management has become a key policy objective (Axis 2) of the EU rural development policy. These significant changes have introduced reallocation of land resources from intensive to extensive farming systems and have initiated restructuring in agriculture and in rural areas.

Under these circumstances, the analysis of the impact of extensive vs intensive farming systems on the development of rural areas should identify: (a) the farming systems which create the strongest backward linkages with the other sectors of the economy and contribute to the economic development of the area; and (b) how farm land reallocation from intensive to extensive crops, due to CAP reform, affects the total output of the regional economy.

In order to fulfill these objectives, this paper focuses on the application of the inputoutput technique, with particular attention to the role of different farming systems in the rural economy, through final demand multiplier analysis. Often however, agricultural policies or other external factors induce exogenous changes in sectors' output which do not relate to final demand changes. In such cases, as the change in the mix of farming systems described here, it is essential to transfer the relevant exogenous changes on the sectors' output in order to measure the impact on the rest of the economy.

This analysis is carried out for the Greek study area of Trikala, a NUTS Ill-level area and "predominantly rural" according to OECD classification (OECD, 1994), located in the central part of Greece, with an area of 3.384 km2 and population 138.047 inhabitants. Trikala depends heavily on agriculture as agricultural employment accounts to 30% of the total employment and contributes by 15% to GDP formation. Its agricultural utilized land (60.000 ha, of which 70% irrigated) allows the presence of both intensive farming systems of irrigated crops such as cotton, maize, sugarbeets etc. and of extensive farming systems of cereals, while in the mountainous areas extensive livestock farming of sheep-grazing prevails. Any CAP change that stimulates shifts of agricultural land from intensive to extensive farming is expected to affect the regional economy of Trikala, due to agriculture's role in it.

Methodological aspects of the input-output analysis

Input-output multiplier analysis

Input-output analysis is recognized as the most suitable quantitative technique for studying the interdependence of production sectors in an economy and identifying major sectors and financial flows between them, over a stated time period (usually a year). Within a macroeconomic framework, input-output modeling can be used for structural analysis, technical change analysis and forecasting. However, the most popular application of the 1-0 technique is impact analysis and policy evaluation with respect to national or regional goals such as employment, GDP and balance of trade. …

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