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Home arrow Economics arrow Disaggregated impacts of CAP reforms : proceedings of an OECD workshop.



This chapter contributes to the literature by providing insight into the regional and spatial structure of agricultural production in France. It interesting to note that regional specialization tends to be reinforced and in some cases it took place automatically because of the maintenance of production in some regions better than in others. We note that agricultural production activities which are supported by the CAP are better distributed across the country, but at the same time are spatially autocorrelated, and thus clustered in neighbouring regions. Therefore, we enquire into the factors underlying spatial concentration and into the existence of agglomeration economies in agricultural productions.

By applying a non-parametric heteroskedasticity and autocorrelation consistent spatial econometric model — which enables us to handle simultaneous equations and spatial endogeneity — to the case of dairy production (inventories), the presence of spatial agglomeration economies was confirmed in the dairy sectors in both 1995 and 2005. This indicates that dairy farms benefit from sharing industry-specific infrastructure and services, thus improving the performance of each individual farm when other dairy farms are located nearby. Agglomeration economies also arise from the development of the industrial milk processing sector close to agricultural areas, which improves access to the input and output markets. In fact, we find that market access variables become increasingly important determinants of the location of dairy farms. These agglomeration forces promote livestock production activities in competitive areas, but this concentration is often associated with environmental problems. In order to address this, the European

Union has implemented environmental regulations that aim at limiting concentration,

ceteris paribus.

We have found that a structural change took place between 1995 and 2005. Indeed the impacts of the various factors of location changed during that period. This can be attributed, to some extent, to the 2003 reform of the Common Agricultural Policy. This policy change has encouraged farmers to adapt their production to market demands. This is consistent with our results since market prices and market accessibility have become key determinants of dairy production. For example, while milk prices were not significant factors in 1995, they were, in 2005, essential determinants of the location of dairy farms. This finding is all the more interesting nowadays, when the situation of the dairy sector in the EU countries is difficult, with high milk price volatility. Indeed, the EU Commissioner has said (see Montague-Jones, 2010) that new mechanisms are needed to fight extreme price volatility without upsetting the natural evolution of markets.

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