Effect of output price volatility on agricultural land use

The EU's CAP reform to liberalize markets and decouple payments from production has led to increasingly volatile output prices, and therefore, more price and income risk. In this study, eight land use share equations are specified and estimated using regional data from 2000 through 2013. A multiple-equation panel data model is used to determine the contribution of increased price volatility and risk to land-use change. More specifically, it is investigated how relative perceived risk affects land use change. We found opposite effects between complementing and substituting land uses, leading to competition within the dairy sector and within crop production.