Ex-ante evaluations of public policies using farm models based on econometrically estimated flexible cost functions

Agriculture in the EU is strongly influenced by public policies. Most of the existing economic models which provide ex-ante analyses are defined on a more or less aggregated level, which ignores the underlying heterogeneity among farms in Europe. This paper presents a model which fills this gap. Flexible cost functions for dairy, cattle and crop were econometrically estimated using the EU farm accountancy data network for the period 1995-2007. For ex-ante evaluation of public policies, these cost functions are integrated in the objective function of farm mathematical programming models. The model is used to analyse the impact of dairy and sugar market reforms on output, input use and income. Generally, the results highlight that changes in farm supplies, input demands and gross margins are heterogeneous across farms, thus underlining the need to perform simulations at the farm level