Policy uncertainty shocks and farm investments in Europe: Evidence from a newspaper‐based index

In order to quantify the impact of agricultural policy uncertainty on European farmers' investment behavior, 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, that is, Germany, the United Kingdom, France, Spain and Italy. We connect this index of policy uncertainty to bookkeeping data from 13,706 farms in these five countries over the period 2014–2018 ( 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 introduction of 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. Anticipated policy uncertainties, such as those arising from Brexit and the European Green Deal, allow farmers to analyze optimal responses and make investment plans, and therefore, if they affect farm investment, they do so smoothly over time (e.g., bringing investment forward). In contrast, unanticipated uncertainties, or policy uncertainty shocks, like those caused by the Russian food import ban of 2014 or the US‐China trade war are negatively correlated to farm investment.