Capitalization of direct payments and agricultural land rental prices in the Czech Republic

The capitalization of direct payments provided under the Common Agricultural Policy (CAP) may constitute a barrier to the competitiveness of European agriculture and to the adaptation of agricultural landscapes to climate change. This study examines the extent to which basic direct payments—namely the Single Area Payment Scheme (SAPS) and the Payment for agricultural practices beneficial for the climate and the environment (Greening Payment)—are capitalized into agricultural land rental prices in the Czech Republic, a country characterized by highly fragmented land ownership and a very high share of rented agricultural land. Using farm-level data from the Czech national database of the Farm Accountancy Data Network (FADN) covering the period 2006–2022, the analysis applies mixed-effects regression models to capture temporal trends, regional differentiation, and heterogeneity across types of agricultural enterprises. The results indicate that, on average, 23.5 % of SAPS and Greening Payment were capitalized into higher land rental prices, suggesting that nearly one-quarter of these subsidies was redistributed to agricultural landowners who are not actively engaged in farming. At this capitalization rate, approximately CZK 54.4 billion in direct payments was transferred to non-farming landowners over the study period, corresponding to around CZK 3.2 billion annually. Agricultural land rental prices were significantly influenced by time-specific effects reflecting long-term market trends and by the classification of agricultural production regions, with more fertile regions associated with higher rents. In addition, corporate farms were found to pay higher rental prices than self-employed farmers.