The impact of the subsidies on efficiency of different sized farms. Case study of the Common Agricultural Policy of the European Union

Staniszewski J., Borychowski M. (2020): The impact of the subsidies on efficiency of different sized farms. Case study of the Common Agricultural Policy of the European Union. Agric. Econ. – Czech, 66: 373–380.

download PDF

The aim of the study is to determine the impact of the EU Common Agricultural Policy (CAP) subsidies on farm efficiency, depending on farm economic size. Although the impact of subsidies on efficiency is already relatively well recognised, earlier studies were focused on identifying this issue rather than explaining the variation in its intensity. Typically, the analysis of variation by type of production and country was conducted with microeconomic data. Our survey is based on data from the Farm Accountancy Data Network (FADN) aggregated at the regional level, for farms representative for particular economic size classes. In the survey, we apply stochastic frontier analysis and "true" fixed-effects model. The results of the research confirm the hypothesis that the impact of subsidies on efficiency depends on the size of farms. Statistically significant, stimulating effect of subsidies was identified only in the group of the largest farms. Such results put into question the effectiveness of the CAP in stimulating the development of the European Model of Agriculture, and at the same time indicate that in its current form, the policy may interfere with market mechanisms and lead to the phenomenon of "rent seeking".

Almanidis P., Sickles R.C. (2011): The skewness issue in stochastic frontier models: Fact or fiction? In: van Keilegom I., Wilson P.W. (eds): Exploring Research Frontiers in Contemporary Statistics and Econometrics. Berlin, Springer Verlag.
Battese G.E., Coelli T.J. (1988): Prediction of firm-level technical efficiencies with a generalised frontier production function and panel data. Journal of Econometrics, 38: 387–399.
Belotti F., Ilardi G. (2012): Consistent estimation of the "true" fixed-effects stochastic frontier model. Research Paper Series. CEIS Tor Vergata.
Belotti F., Daidone S., Ilardi G., Atella V. (2013): Stochastic frontier analysis using Stata. The Stata Journal, 13: 719–758.
Bojnec S., Latruffe L. (2013): Farm size, agricultural subsidies and farm performance in Slovenia. Land Use Policy, 32: 207–217.
Cechura L. (2012): Technical efficiency and total factor productivity in Czech agriculture. Agricultural Economics – Czech, 58: 147–156.
Czyżewski B., Matuszczak A. (2018): Rent-seeking in agricultural policy revisited: a new look at the Common Agricultural Policy consensus. Studies in Agricultural Economics, 120: 69–79.
European Commission (2018): EU budget: the Common Agricultural Policy beyond 2020. Available at (accessed Jan 1, 2020).
European Commission (2019): FADN Public Database. Available at (accessed June 13, 2019).
European Commission (2020): Common agricultural policy, Available at (accessed Jan 31, 2020).
Eurostat (2018): Agriculture, Forestry and Fishery Statistics. Statistical Books. Available at (accessed Aug 30, 2019).
Greene W. (2005): Reconsidering heterogeneity in panel data estimators of the stochastic frontier model. Journal of Econometrics, 126: 269–303.
Hadley D. (2006): Patterns in technical efficiency and technical change at the farm-level in England and Wales, 1982–2002. Journal of Agricultural Economics, 57: 81–100.
Kostlivy V., Fuksova Z. (2019): Technical efficiency and its determinants for Czech livestock farms. Agricultural Economics – Czech, 65: 175–184.
Kowalczyk S., Sobiecki R. (2011): The European model of agriculture in relation to global challenges (Europejski model rolnictwa wobec wyzwań globalnych). Problems of Agricultural Economics (Zagadnienia Ekonomiki Rolnej), 329: 35–58. (in Polish)
Latruffe L., Bravo-Ureta B.E., Carpentier A., Desjeux Y., Moreira V.H. (2017): Subsidies and technical efficiency in agriculture: Evidence from European dairy farm. American Journal of Agricultural Economics, 99: 783–799.
Latruffe L., Desjeux Y. (2016): Common Agricultural Policy support, technical efficiency and productivity change in French agriculture. Review of Agricultural, Food and Environmental Studies, 97: 15–28.
Marzec J., Pisulewski A. (2017): The effect of CAP subsidies on the technical efficiency of Polish dairy farms. Central European Journal of Economic Modelling and Econometrics, 9: 243–273.
Minviel J.J., de Witte K. (2016): The influence of public subsidies on farm technical efficiency: A robust conditional nonparametric approach. Working Paper SMART – LERECO: 16–10.
Minviel J.J., Latruffe L. (2017): Effect of public subsidies on farm technical efficiency: a meta-analysis of empirical results. Applied Economics, 49: 213–226.
Martinho V.J.P.D. (2017): Efficiency, total factor productivity and returns to scale in a sustainable perspective: An analysis in the European Union at farm and regional level. Land Use Policy, 68: 232–245.
Pavelescu F.M. (2011): Some aspects of the translog production function estimation. Romanian Journal of Economics, 32: 131–150.
Parmeter C.F., Kumbhakar S.C. (2014): Efficiency analysis: A primer on recent advances, foundations and trends in econometrics, 7: 191–385.
Pechrova M. (2015): The effect of subsidies on the efficiency of farms in the Liberecký region. Ekonomická revue (Central European Review of Economic Issues), 18: 15–24.
Serra T., Zilberman D., Gil J.M. (2008): Farms’ technical inefficiencies in the presence of government programs. The Australian Journal of Agricultural and Resource Economics, 52: 57–76.
Sielska A., Kuszewski T. (2016): The efficiency of agricultural production in FADN regions in 1996–2011. Journal of Central European Agriculture, 17: 835–855.
Simar L., Wilson P.W. (2010): Inferences from cross-sectional, stochastic frontier models. Econometric Reviews, 29: 62–98.
Swinnen J. (ed.) (2015): The political economy of the 2014–2020 Common Agricultural Policy: An imperfect storm. Brussels, Belgium, Centre for European Policy Studies.
Zhu X., Lansink A.O. (2010): Impact of CAP subsidies on technical efficiency of crop farms in Germany, the Netherlands and Sweden. Journal of Agricultural Economics, 61: 545–564.
Zhu X., Demeter R.M., Lansink A.O. (2012): Technical efficiency and productivity differentials of dairy farms in three EU countries: the role of CAP subsidies. Agricultural Economics Review, 13: 1–27.
download PDF

© 2022 Czech Academy of Agricultural Sciences | Prohlášení o přístupnosti