Transaction costs, product specialisation and farm structure in Central and Eastern Europe

Abstract

In Western Europe, the USA and other developed countries agriculture is dominated by small family farms. In Central and Eastern European countries (CEECs) a dual structure of farms exists. There are large corporate farms (CF) and small family farms (FF) in CEECs. This article shows that both CF and FF specialise in commodities in which they have a comparative advantage. CF specialise in capital-intensive products and in products with low labour monitoring requirements. FF specialise in products with higher labour monitoring requirements. The implication of this study is that farm structure indirectly determines in which products a country will be competitive on international markets. This is especially important for transition countries where high transaction costs hinder changes of farm organisation. Because of high transaction costs, farms are more flexible in adjusting production structure than adjusting farm organisation in transition countries.

Notes

Disclaimer: The views expressed are purely those of the author and may not in any circumstances be regarded as stating an official position of the European Commission.

1. The CEECs in this article are Bulgaria, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Romania, Slovakia and Slovenia.

2. For example, to obtain labour use for permanent crops, we extracted labour data from farms specialised in permanent crops. These values were then assumed to represent labour use in production of permanent crops.

3. AWU measure the total labour input of a holding expressed in annual work units (equal to full-time person equivalents).

4. Capital costs include depreciation, energy costs, machinery and building current consumption.

5. Labour costs include wage costs.

6. The coefficients for country dummies are not reported here but are available upon request from the authors.