Danish Farmers and Investors: An analysis of reasons and motivations for increasing cross-border agricultural activities in Central and Eastern European countries

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Danish Farmers and Investors: An analysis of reasons and motivations for increasing cross-border agricultural activities in Central and Eastern European countries
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    Danish Farmers and Investors: An analysis of reasons and motivations for increasing cross-border agricultural activities in Central and Eastern European countries Luljeta Hajderllari Kostas Karantininis Ole Bonnichsen 2012 / 10    FOI Working Paper 2012 / 10 Danish Farmers and Investors: An analysis of reasons and motivations for increasing cross-border agricultural activities in Central and Eastern European countries Authors: Luljeta Hajderllari, Kostas Karantininis, Ole Bonnichsen Institute of Food and Resource Economics University of Copenhagen Rolighedsvej 25 DK 1958 Frederiksberg DENMARK www.foi.life.ku.dk/English   Danish Farmers and Investors: An analysis of reasons and motivations for increasing cross-border agricultural activities in Central and Eastern European countries Luljeta Hajderllari 1,a  Kostas Karantaninis 1,2  Ole Bonnichsen 1   1 Institute of Food and Resource Economics University of Copenhagen, Denmark 2 Swedish University of Agricultural Sciences (SLU) Uppsala, Sweden a Corresponding author: luha@foi.ku.dk Abstract The purpose of this paper is to provide some evidence on the push and pull factors that motivate farmers to expand across their home countries’ borders. The focus is on Danish expansion farmers and investor farmers setting up activities in Central and Eastern European countries like Slovakia, Poland, Romania and Latvia. Data from 44 mail surveys was analysed to explore the push and pull factors that contribute to farmers’ level of activities outside their home country. The responses given in the mail survey are analysed using two analytical methods of frequency analysis and an ordered probit model. The results indicate that the important factors for Danish farmers to extend overseas are price and availability of land, institutional governance, network and image with regard to farming. These findings generally support the literature regarding reasons for farmers to increase their cross-border activities, except that we do not find a significant influence from the availability of cheap labour in the host countries. Keywords : Denmark; Danish farmer; agriculture; cross-border; Central Eastern Europe JEL Codes : C51, D22, F23, Q12, Q17  FOI Working Paper 2012 / 10   2 1. Introduction The globalization process in agribusiness has emerged decades ago and within this process has been the emergence of the global farmer. This is a farmer or an investor in farm activities as well as farming enterprises who carries out activities in more than one country. In many countries over the  past years there has been a growing demand from foreign farmers and investors for agricultural land, thereby risking moving toward the creation of a “neo-colonial” system. This is the process in which the new reach countries plan to secure farmland overseas in order to improve their food security (Financial Times, 2008). These reach countries invest in buying agricultural land in for example Africa and Asia to grow different commodities and ship them back to their own countries. This investment brings technology as well as better infrastructure and financial resources to the host countries, but it also may bring problems for the local smallholder farmers. They may suffer, given that they are unable to invest overseas and unable to compete internationally (Friis and Reenberg, 2010; Rakotoarisoa, 2011).   There have been a growing number of European farms crossing overseas. For instance, there are a significant number of Dutch farms setting up their activities in Canada and USA (Wolleswinkel and Weersink, 2001). Similarly, Danish farmers are farming abroad and mostly in Central and Eastern European (CEE) countries such as Romania, Latvia, Ukraine, Poland and Slovenia. The owners often still live in Denmark, but they have placed parts of their pig, cattle or vegetable  production in Eastern Europe (Association of Danish Farmers Abroad, 2012; Karantininis and Zylbersztajn, 2007). Farmers and investors with large financial resources expand to other countries to take advantage of land, water and human resources (productivity factors). The focus of this paper is not to go into depth about how these farmers and investors are organized and what are the pros and cons of this  process both for home and host countries, but instead to highlight the key push and pull factors driving the farmers’ globalization. Investigating the push and pull factors that lead Danish farmers toward foreign markets it is of importance to two reasons. Firstly, for other potential farmers that are considering investing, expanding or even emigrating abroad, the results could help them in making a more accurate estimation of the chosen country. Secondly, for the policy makers and governments of both home and host countries to have an overview to the main factors that push or  pull their investors or producers to invest somewhere else. Previously this has been investigated for the case of Dutch emigration farmers moving to Canada and USA (Wolleswinkel and Weersink, 2001; Weersink and Eveland, 2006; Richardson et al., 2007). They focus mostly on the Dutch dairy farmers that migrate. Noteworthy reasons behind the Dutch dairy farmers relocating to USA and Canada are the strict environmental regulations experienced in the European Union, expensive land and limited opportunity for growth in the Netherlands (Wolleswinkel and Weersink, 2001). In our paper we use Denmark as a case study. Denmark is a country with large agriculture activity, with export of agricultural products making up 5.4% of GDP and producing three times the amount of food the country needs for itself. This indicates that the agriculture sector still plays a vital role in  FOI Working Paper 2012 / 10   3 the Danish economy. There has been an increasing modernization of agriculture combined with changes in farm management and organization as well as the attraction of industrial employments in the urban areas. These changes have made farmers more competitive and aim for foreign markets in a similar fashion to how firms do. Denmark is a suitable case study to investigate the movement of farms and to the authors’ knowledge there is a lack of research regarding this process. Within the literature, one other paper looks at the incentives of European farmers to go to CEE countries (Karantininis and Zylbersztajn, 2007). Their paper uses micro-macro approach, property right theory and a multiple case study where one of the cases is Denmark. They attempt to define the global farmer and some of the reasons for globalization. We categorize the Danish farmers into two main types and based on this framework we highlight the main push and pull factors considered most important when they engage in cross-border activities. First we use a frequency analysis to describe the general motivations for farmers going abroad and secondly, an ordered probit model is used in order to define more specifically the push and pull factors important to the two different types of farmer in the framework. 1.1 Push and Pull Factors In order to explain the push and pull factors influencing farmers’ decisions about engaging in cross- border activities, this paper adopts some theory of the firm. It can be said that the literature related to firms moving their operations abroad is equally applicable to that of farms. The concept of push and pull factors driving internationalisation is inspired by Etemad (2004). Most firms are searching for a strategy to stay ahead of the competition and one way of doing this is to globalize. Generally known economic reasons like low costs influence firms’ decisions of extending their activities (Porter 1986; Yip 1989). Transaction costs can be one of the most important pull factors of becoming a global farmer. A lower cost of information, processing,  production and distribution are incentives for the firm to globalize. Also the firm which operate abroad is aiming to maximize the use of their manufacturing equipment and spread the high costs of research and development over the product life cycle. Due to a low level of development, there are countries that can be attractive for the high tech countries to expand to. Fixed assets, subsidies, human capital and low wages can be some of the factors that firms may find attractive. There are push and pull factors that affect the decision. Economies of scale is a key factor that pushes firms to expand abroad (Douglas and Wind 1987; Yip 1989). This is because firms can reach a higher level of output spread over the large fixed cost in order to lower the cost per unit. Furthermore, most firms move their headquarters overseas to avoid their respective home countries’ high taxes and other costs associated with business operations in their home countries. Other important factors that may push firms abroad are the size of firm, country of srcin and the industry that the firm is involved in (Dunning, 2009). Of the pull factors influencing the globalization decision, some of the most important ones are looser trade barriers, less environmental regulation, customer demands and globalization of their
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