Do common agricultural policy subsidies matter for the market-environment trade off? An evaluation of R&D objectives and decisions across farmers

Abstract

The Common Agricultural Policy (CAP) has evolved into a multifunctional instrument designed to satisfy a diverse portfolio of European Union policy objectives. In this context, research, innovation, and knowledge transfer are instruments applied to enhance competitiveness and improve sustainability in agriculture. At a time when the CAP is changing policy targets, it is important to assess whether the resulting reorientation of its instruments fosters farmers to improve their R&D processes. We combine a farm business dataset for Spain with information about CAP subsidies to assess the impact of the latter regarding the fulfillment of different R&D objectives. We analyze the effect that changes in the structure of subsidies have on the R&D objectives and decisions of the farmers using a multivariant ordered probit model. The results suggest that specific subsidies have a discouraging effect on production increase and environmental protection R&D objectives but an encouraging effect on the cost efficiency goal. On the other hand, decoupled subsidies support the whole set of R&D objectives considered. The analysis performed provides a link between the R&D activities and objectives of farmers, CAP policies in the form of general and oriented subsidies, and environmental pressures such as drought and deforestation.

Keywords

• Agro-environmental subsidies
• Common agricultural policy
• Market-environment trade off
• Innovation incentives
• R&D objectives
• Multivariate ordered probit