The dynamic effects of government-supported farm-investment activities on structural change in Austrian agriculture

The objective of our paper is to analyse the effects of government-supported farm-investment activities on structural change in agriculture. Our method comprises combining direct covariate matching with a difference-in-difference (DiD) estimator. In order to capture the dynamics and the heterogeneity of structural effects, we have developed time and farm-group specific models. We apply our model in Austria, where we analyse the Integrated Administration and Control System (IACS) data of 98,000 farms within the time period of 2000-2011. Our results show that farms adapt their numbers of livestock very quickly, whereas, the increase in agricultural area seems to be fairly decoupled from the investment activity itself. Effects tend to be farm-group specific; e.g. farm size initially increases (and drops) on pig farms to a greater extent than on cattle farms. Furthermore, government-supported farm-investment activities not only influence structural change but also tend to increase production intensity and reduce diversification on arable land - perhaps counteracting, therefore, the goals of agri-environmental schemes. However, our results indicate that investing (cattle) farmers are more likely to enter the organic farming programme and tend rather to remain in animal husbandry.