Determinants of structural change in production orientation

In recent decades, farm structural change in Finland has been both rapid and multi-faceted. In addition to the well-documented concentration of farms, many farm enterprises have radically changed their production orientation, often from traditional dairy to crop or beef production, with large variations
across regions. We analyse this process in a Markov chain framework by econometrically estimating the determinants of production re-orientation, considering the influence of farm-specific factors, market forces and policy variables. The panel data set contains the transition probabilities of dairy
farms over the 2001–2018 period, as well as regional-level explanatory variables. We find that market forces play a dominant role in driving structural change, with relative profitability influencing sectorial switch and the unemployment rate affecting exit. By contrast, there is little evidence that
polices (e.g. investment subsidies) have a significant effect on structural change, although we interpret this result with caution due to measurement issues.