Efficiency, subsidies and environmental adaptation of animal farming under CAP

The purpose of this paper is to model the interaction between the targets of the current CAP: environmental adaptation, subsidies and efficiency the of animal farming. To this end we first have to identify the production frontier and relative efficiency level for each animal oriented type of farm in the sample. The production frontier and efficiency index for each type of farm (assuming no specific production functions) are identified using DEA techniques. We then address the relationship between relative efficiency, farm size and environmentally friendly behavior realizing a non parametric regression of efficiency on economic size, a proxy for the degree of environmental appropriateness, and regional dummies. Calculations of the efficiency of the farms including direct subsidies, are compared with the counterfactual exercise in the case where direct subsidies are not considered. Finally, we look for relations between subsidies and factors such as farm size, efficiency and environmentally friendly behavior. One key result shows that on average absolute direct payments generally tend to increase efficiency. However, in most of the cases the mean efficiency decreases as the percentage of direct payments rises. Direct payments are found to be positively related to environmentally friendly production, at least in Germany. However, in general, the direct payment system is not sufficient to offset the fact that the less environmentally friendly farms as well as the larger ones are more efficient.