Agriculture’s Inter-industry Linkages, Aggregation Bias and Rural Policy Reforms

Authors

  • G. Lindberg,

  • P. Midmore,

  • Y. Surry

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    • Gunnar Lindberg is with Nordregio, Nordic Centre for Spatial Development, Stockholm, Sweden. Yves Surry is with the Department of Economics, Swedish University of Agricultural Sciences, Uppsala, Sweden. Peter Midmore is with the School of Management and Business, Aberystwyth University, Aberystwyth Wales, UK. Email: pxm@aber.ac.uk for correspondence. We gratefully acknowledge support from two Commission of the European Communities Framework Programme Projects: CARERA (The Impacts of CAP Reform on the Employment Levels in Rural Areas, Contract No. 022653) and FACEPA (Farm Accountancy Cost Estimation and Policy Analysis of European Agriculture, Contract No. 212292). However, this article does not necessarily reflect the European Commission’s views. We also thank anonymous referees and the Editor for comments and suggestions that much improved our original text.


Abstract

As agricultural policy reform and its effects have become increasingly territorialised, analyses that attempt to explain or predict impacts need to be both more localised and to identify spill-over effects. Local and regional general equilibrium approaches have become increasingly popular because they can extend predictions of policy shocks obtainable from partial equilibrium sectoral models to identify the wider effects. However, agriculture is usually described as a single sector in input–output accounts, whereas policy shocks that affect constituent commodities with differential impacts will have inter-industry effects that are different to those implied by average input–output coefficients. Regionalisation of aggregated input–output tables adds further to these difficulties. The objective of this study is to develop a practical method for dealing with these problems. It describes the theoretical basis of aggregation bias and shows how it can be measured, in two contrasting case study regions in the UK and Sweden. Having established that this is a significant issue, a simple but effective procedure is demonstrated, based on additional information on variable costs, which transforms policy shocks from a direct change in agricultural output to that transmitted to the suppliers of inputs. This method provides an impact close to that which could be calculated if the general equilibrium system had indeed been disaggregated, and supports use of this approach in impact studies where insufficient time or funding are available for complete disaggregation of an agricultural sector’s regional accounts.

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