Well functioning factor markets are a crucial condition for the competitiveness and growth of agriculture and for rural development. At the same time, the functioning of the factor markets themselves are influenced by changes in agriculture and the rural economy. Such changes can be the result of technological change, of globalisation and European market integration, of changing consumer preferences, and of changes in policy. In particular changes in the Common Agricultural Policy (CAP) in the recent decade have affected the rural factor markets.

While agricultural and food markets are fully integrated in a European single market, subject to an EU-wide common policy, the CAP, this is not necessarily the case for factor markets. For example, member state regulations and institutions affecting land, labour and capital markets may cause important heterogeneity in the factor markets. Obviously such variations are likely to have a potentially important effect, not just on the functioning of the factor markets, but also on the competitiveness of the agricultural sector, on structural change, and rural development in general. Such variations are also likely to cause different interactions between factor markets and EU policies such as the CAP, as they may react differently to reforms, and because they may cause differential effects of the reforms.

The general objective of the Factor Markets project is to analyse the functioning of factor markets for agriculture in the EU-27, including the Candidate Countries. The Factor Markets project will compare the different markets, their institutional framework and their impact on agricultural development and structural change, as well as their impact on rural economies, for the Member States, Candidate Countries and the EU as a whole.

The Factor Markets project will focus on capital, labour and land markets. The capital market analysis will look at various forms of capital and study, among others, the determinants of sectoral investment decisions, including CAP instruments, and the impact of investments on technological change and capital stocks. The labour market analysis will include, for example, the analysis of human capital quality and mobility in the EU agricultural sector as well as off-farm labour supply. The land market analysis will look at both lease and sales markets and include, among others, the impact of the capitalisation of support into land values and factors relating to land transfers.

The results of this study will contribute to a better understanding of the fundamental economic factors affecting EU agriculture, thus allowing better targeting of CAP measures with the aim of improving the competitiveness of the sector.