The impact of CAP subsidies on the productivity of cereal farms in six European countries

TL;DR

This study examines how CAP subsidies influence cereal farm productivity across six European countries, revealing that subsidies generally have a negative impact, with variations based on subsidy type, country, and farm productivity levels.

Contribution

It provides a comparative analysis of CAP subsidies' effects on TFP across multiple countries and farm productivity groups using a robust estimation strategy.

Findings

CAP subsidies negatively affect farm TFP

Impact varies by subsidy type and country

Higher productivity farms are differently affected

Abstract

Total factor productivity (TFP) is a key determinant of farm development, a sector that receives substantial public support. The issue has taken on great importance today, where the conflict in Ukraine has led to repercussions on the cereal markets. This paper investigates the effects of different subsidies on the productivity of cereal farms, accounting that farms differ according to the level of TFP. We relied on a three-step estimation strategy: i) estimation of production functions, ii) evaluation of TFP, and iii) assessment of the relationship between CAP subsidies and TFP. To overcome multiple endogeneity problems, the System-GMM estimator is adopted. The investigation embraces farms in France, Germany, Italy, Poland, Spain and the United Kingdom using the FADN samples from 2008 to 2018. Adding to previous analyses, we compare results from different countries and investigate three subsets of farms with varying levels of TFP. The outcomes confirm how CAP negatively impacts farm TFP, but the extent differs according to the type of subsidies, the six countries and, within these, among farms with different productivity groups. Therefore there is room for policy improvements in order to foster the productivity of cereal farms.