Job market paper

Policy uncertainty shocks deter farm investments in Europe: Evidence from a newspaper-based index

Viviana Garcia, Scott Swinton, Robert Finger

Abstract

Farmers face large uncertainties surrounding agricultural and environmental policies. However, we lack quantification of this uncertainty, and evidence of its effects on farmer decision-making. We construct a newspaper-based monthly index of European agricultural policy uncertainty from 2013 to 2023. We use 327,224 newspaper articles to assess and compare the trends in policy uncertainty across five top agricultural producers in Europe, i.e., Germany, the United Kingdom, France, Spain and Italy. Moreover, we use bookkeeping data from 13,706 farms in these five countries over five years (N=68,530) to estimate the relationship between policy uncertainty and investment decisions. We find an increasing trend in agricultural policy uncertainty, with significant peaks around key events such as the COVID-19 pandemic, the European Green Deal and Brexit. Despite the presence of a common policy environment, agricultural policy uncertainty is heterogeneous across countries and captures country-specific uncertainties such as elections and weather shocks. While evolving policy uncertainties appear to be unrelated to investments, policy uncertainty shocks deter farm investments.