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

Abstract

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".

Keywords

• efficiency
• farm accountancy data network (fadn)
• panel data
• stochastic frontier analysis (sfa)
• subsidies
• true fixed effects