European farmers’ responses to higher commodity prices: Cropland expansion or forestlands preservation?

The interconnection between commodity prices, agricultural expansion and forestland conservation by farmers has received little scholarly attention in existing literature. This paper analyses the influence of European farmers’ responsiveness to changes in agri-commodity prices on how they manage the trade-offs between agricultural expansion and forestland preservation. In so doing, we rely on a comprehensive dataset relating to European agricultural holdings over the period of 2008–2017, covering 128 regions, and use a recursive equation system that links commodity prices to economic output per area, and the latter to forestland privately owned by farmers. Controlling for farm characteristics, geographical spillovers as well as regressor endogeneity, we find results suggesting that there is indeed evidence of such a trade-off. Specifically, with increased prices, European agricultural holdings expand crop production (respectively agricultural land), which reversely conflicts with private forestland. Replicating the analysis on different subsamples confirms the robustness of these findings. Based on these results, we advocate for further incentive towards the preservation of forests privately owned by agricultural holdings.