IDEAS home Printed from https://ideas.repec.org/p/eps/fmwppr/148.html
   My bibliography  Save this paper

CAP Subsidies and the Productivity of EU Farms

Author

Listed:
  • Rizov, Marian
  • Pokrivcak, Jan
  • Ciaian, Pavel

Abstract

This paper investigates the impact of subsidies from the common agricultural policy on the total factor productivity of farms in the EU. We employ a structural, semi-parametric estimation algorithm, directly incorporating the effect of subsidies into a model of unobserved productivity. We empirically study the effects using samples from the Farm Accountancy Data Network for EU-15 countries. Our main findings are clear: subsidies had a negative impact on farm productivity in the period before the decoupling reform was implemented; after decoupling the effect of subsidies on productivity was more nuanced, as in several countries it turned positive.

Suggested Citation

  • Rizov, Marian & Pokrivcak, Jan & Ciaian, Pavel, 2013. "CAP Subsidies and the Productivity of EU Farms," Factor Markets Working Papers 148, Centre for European Policy Studies.
  • Handle: RePEc:eps:fmwppr:148
    as

    Download full text from publisher

    File URL: http://www.factormarkets.eu/system/files/FM_WP37%20by%20Rizov%20et%20al%20-%20final.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Key, Nigel D. & Roberts, Michael J., 2008. "AJAE appendix for “Nonpecuniary Benefits to Farming: Implications for Supply Response to Decoupled Payments”," American Journal of Agricultural Economics APPENDICES, Agricultural and Applied Economics Association, vol. 91(1), May.
    2. Van Biesebroeck, Johannes, 2008. "The Sensitivity of Productivity Estimates," Journal of Business & Economic Statistics, American Statistical Association, vol. 26, pages 311-328.
    3. Hyytinen, Ari & Toivanen, Otto, 2005. "Do financial constraints hold back innovation and growth?: Evidence on the role of public policy," Research Policy, Elsevier, vol. 34(9), pages 1385-1403, November.
    4. Arellano, Manuel & Bover, Olympia, 1995. "Another look at the instrumental variable estimation of error-components models," Journal of Econometrics, Elsevier, vol. 68(1), pages 29-51, July.
    5. Gershon Feder & Lawrence J. Lau & Justin Y. Lin & Xiaopeng Luo, 1990. "The Relationship between Credit and Productivity in Chinese Agriculture: A Microeconomic Model of Disequilibrium," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 72(5), pages 1151-1157.
    6. Latruffe, Laure & Bravo-Ureta, Boris E. & Moreira, Victor H. & Desjeux, Yann & Dupraz, Pierre, 2011. "Productivity and Subsidies in European Union Countries: An Analysis for Dairy Farms Using Input Distance Frontiers," 2011 International Congress, August 30-September 2, 2011, Zurich, Switzerland 114396, European Association of Agricultural Economists.
    7. Abel, Andrew B & Eberly, Janice C, 1994. "A Unified Model of Investment under Uncertainty," American Economic Review, American Economic Association, vol. 84(5), pages 1369-1384, December.
    8. Pavel Ciaian & Johan F.M. Swinnen, 2009. "Credit Market Imperfections and the Distribution of Policy Rents," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 91(4), pages 1124-1139.
    9. Sims,Christopher A. (ed.), 1994. "Advances in Econometrics," Cambridge Books, Cambridge University Press, number 9780521444606, December.
    10. Fabienne Femenia & Alexandre Gohin & Alain Carpentier, 2010. "The Decoupling of Farm Programs: Revisiting the Wealth Effect," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 92(3), pages 836-848.
    11. Lakner, Sebastian, 2009. "Technical efficiency of organic milk-farms in Germany - the role of subsidies and of regional factors," 2009 Conference, August 16-22, 2009, Beijing, China 51301, International Association of Agricultural Economists.
    12. Marian Rizov & Patrick Paul Walsh, 2009. "Productivity and Trade Orientation in UK Manufacturing," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 71(6), pages 821-849, December.
    13. Rajan, Raghuram G & Zingales, Luigi, 1998. "Financial Dependence and Growth," American Economic Review, American Economic Association, vol. 88(3), pages 559-586, June.
    14. James B. Whitaker, 2007. "The Varying Impacts of Agricultural Support Programs on U.S. Farm Household Consumption," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 91(3), pages 569-580.
    15. James Vercammen, 2007. "Farm bankruptcy risk as a link between direct payments and agricultural investment," European Review of Agricultural Economics, Foundation for the European Review of Agricultural Economics, vol. 34(4), pages 479-500, December.
    16. Carpentier, Alain & Gohin, Alexandre & Heinzel, Christoph, 2012. "Production Effects of Direct Payments to Active Farmers: a Microeconomic Dynamic and Stochastic Analysis," 123rd Seminar, February 23-24, 2012, Dublin, Ireland 122447, European Association of Agricultural Economists.
    17. J. Bradford De Long & Lawrence H. Summers, 1991. "Equipment Investment and Economic Growth," The Quarterly Journal of Economics, Oxford University Press, vol. 106(2), pages 445-502.
    18. Joe Dewbre, 2006. "The Impact of Coupled and Decoupled Government Subsidies on Off-Farm Labor Participation of U.S. Farm Operators," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 88(2), pages 393-408.
    19. Ackerberg, Daniel & Lanier Benkard, C. & Berry, Steven & Pakes, Ariel, 2007. "Econometric Tools for Analyzing Market Outcomes," Handbook of Econometrics, in: J.J. Heckman & E.E. Leamer (ed.), Handbook of Econometrics, edition 1, volume 6, chapter 63, Elsevier.
    20. Konstantinos Giannakas & Richard Schoney & Vangelis Tzouvelekas, 2001. "Technical Efficiency, Technological Change and Output Growth of Wheat Farms in Saskatchewan," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 49(2), pages 135-152, July.
    21. Blundell, Richard & Bond, Stephen, 1998. "Initial conditions and moment restrictions in dynamic panel data models," Journal of Econometrics, Elsevier, vol. 87(1), pages 115-143, August.
    22. Richard Ericson & Ariel Pakes, 1995. "Markov-Perfect Industry Dynamics: A Framework for Empirical Work," Review of Economic Studies, Oxford University Press, vol. 62(1), pages 53-82.
    23. János Kornai, 2014. "The soft budget constraint," Acta Oeconomica, Akadémiai Kiadó, Hungary, vol. 64(supplemen), pages 25-79, November.
    24. Teresa Serra & David Zilberman & Barry K. Goodwin & Allen Featherstone, 2006. "Effects of decoupling on the mean and variability of output," European Review of Agricultural Economics, Foundation for the European Review of Agricultural Economics, vol. 33(3), pages 269-288, September.
    25. Xueqin Zhu & Alfons Oude Lansink, 2010. "Impact of CAP Subsidies on Technical Efficiency of Crop Farms in Germany, the Netherlands and Sweden," Journal of Agricultural Economics, Wiley Blackwell, vol. 61(3), pages 545-564, September.
    26. Nigel Key & Michael J. Roberts, 2009. "Nonpecuniary Benefits to Farming: Implications for Supply Response to Decoupled Payments," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 91(1), pages 1-18.
    27. Stéphane Blancard & Jean-Philippe Boussemart & Walter Briec & Kristiaan Kerstens, 2006. "Short- and Long-Run Credit Constraints in French Agriculture: A Directional Distance Function Framework Using Expenditure-Constrained Profit Functions," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 88(2), pages 351-364.
    28. Ciaian, Pavel & Pokrivcak, Jan and Katarina Szegenyova, 2012. "Do agricultural subsidies crowd out or stimulate rural credit market institutions? The case of EU Common Agricultural Policy," European Integration online Papers (EIoP), European Community Studies Association Austria (ECSA-A), vol. 16, November.
    29. Laure Latruffe & Hervé Guyomard & Chantal Le Mouël, 2009. "The role of public subsidies on farms’ managerial efficiency: An application of a five-stage approach to France," Working Papers SMART 09-05, INRAE UMR SMART.
    30. Jeremy G. Weber & Nigel Key, 2012. "How much Do Decoupled Payments Affect Production? An Instrumental Variable Approach with Panel Data," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 94(1), pages 52-66.
    31. Sims,Christopher A. (ed.), 1994. "Advances in Econometrics," Cambridge Books, Cambridge University Press, number 9780521444590, December.
    32. Paolo Sckokai & Daniele Moro, 2009. "Modelling the impact of the CAP Single Farm Payment on farm investment and output," European Review of Agricultural Economics, Foundation for the European Review of Agricultural Economics, vol. 36(3), pages 395-423, September.
    33. Marian Rizov & Patrick Paul Walsh, 2011. "Is There a Rural-Urban Divide? Location and Productivity of UK Manufacturing," Regional Studies, Taylor & Francis Journals, vol. 45(5), pages 641-656.
    34. Olley, G Steven & Pakes, Ariel, 1996. "The Dynamics of Productivity in the Telecommunications Equipment Industry," Econometrica, Econometric Society, vol. 64(6), pages 1263-1297, November.
    35. Arathi Bhaskar & John C. Beghin, 2010. "Decoupled Farm Payments and the Role of Base Acreage and Yield Updating Under Uncertainty," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 92(3), pages 849-858.
    36. Courleux, Frédéric & Guyomard, Hervé & Levert, Fabrice & Piet, Laurent, 2008. "How the EU Single Farm Payment should be modelled: lump-sum transfers, area payments or… what else?," Working Papers 211014, Institut National de la recherche Agronomique (INRA), Departement Sciences Sociales, Agriculture et Alimentation, Espace et Environnement (SAE2).
    37. Lee, Jong-Wha, 1996. "Government Interventions and Productivity Growth," Journal of Economic Growth, Springer, vol. 1(3), pages 391-414, September.
    38. Sauer, Johannes & Park, Tim, 2009. "Organic farming in Scandinavia -- Productivity and market exit," Ecological Economics, Elsevier, vol. 68(8-9), pages 2243-2254, June.
    39. Barry K. Goodwin & Ashok K. Mishra, 2006. "Are “Decoupled” Farm Program Payments Really Decoupled? An Empirical Evaluation," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 88(1), pages 73-89.
    40. Yee, Jet & Ahearn, Mary Clare & Huffman, Wallace, 2004. "Links among Farm Productivity, Off-Farm Work, and Farm Size in the Southeast," Journal of Agricultural and Applied Economics, Cambridge University Press, vol. 36(3), pages 591-603, December.
    41. Nickell, Stephen J, 1996. "Competition and Corporate Performance," Journal of Political Economy, University of Chicago Press, vol. 104(4), pages 724-746, August.
    42. Alston, Julian M. & James, Jennifer S., 2002. "The incidence of agricultural policy," Handbook of Agricultural Economics, in: B. L. Gardner & G. C. Rausser (ed.), Handbook of Agricultural Economics, edition 1, volume 2, chapter 33, pages 1689-1749, Elsevier.
    43. Baumol, William J., 1996. "Entrepreneurship: Productive, unproductive, and destructive," Journal of Business Venturing, Elsevier, vol. 11(1), pages 3-22, January.
    44. Maurice J. Roche, 2004. "Riskier product portfolio under decoupled payments," European Review of Agricultural Economics, Foundation for the European Review of Agricultural Economics, vol. 31(2), pages 111-123, June.
    45. Carl Johan Lagerkvist, 2005. "Agricultural policy uncertainty and farm level adjustments--the case of direct payments and incentives for farmland investment," European Review of Agricultural Economics, Foundation for the European Review of Agricultural Economics, vol. 32(1), pages 1-23, March.
    46. Sébastien Mary, 2013. "Assessing the Impacts of Pillar 1 and 2 Subsidies on TFP in French Crop Farms," Journal of Agricultural Economics, Wiley Blackwell, vol. 64(1), pages 133-144, February.
    47. David A. Hennessy, 1998. "The Production Effects of Agricultural Income Support Policies under Uncertainty," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 80(1), pages 46-57.
    48. Aude Ridier & Florence Jacquet, 2002. "Decoupling Direct Payments and the Dynamics of Decisions under Price Risk in Cattle Farms," Journal of Agricultural Economics, Wiley Blackwell, vol. 53(3), pages 549-565, November.
    49. Magnus Blomström & Robert E. Lipsey & Mario Zejan, 1996. "Is Fixed Investment the Key to Economic Growth?," The Quarterly Journal of Economics, Oxford University Press, vol. 111(1), pages 269-276.
    50. Barry K. Goodwin & Ashok K. Mishra, 2005. "Another Look at Decoupling: Additional Evidence on the Production Effects of Direct Payments," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 87(5), pages 1200-1210.
    51. Laure Latruffe, 2010. "Competitiveness, Productivity and Efficiency in the Agricultural and Agri-Food Sectors," OECD Food, Agriculture and Fisheries Papers 30, OECD Publishing.
    52. Wooldridge, Jeffrey M., 2009. "On estimating firm-level production functions using proxy variables to control for unobservables," Economics Letters, Elsevier, vol. 104(3), pages 112-114, September.
    53. John E. Floyd, 1965. "The Effects of Farm Price Supports on the Returns to Land and Labor in Agriculture," Journal of Political Economy, University of Chicago Press, vol. 73, pages 148-148.
    54. Ciaian, Pavel & Swinnen, Johan F.M., 2009. "AJAE appendix for ‘Credit Market Imperfections and the Distribution of Policy Rents’," American Journal of Agricultural Economics APPENDICES, Agricultural and Applied Economics Association, vol. 91(4), pages 1-10, February.
    55. Chantal Le Mouel, 2004. "Impacts of alternative agricultural income support schemes on multiple policy goals," European Review of Agricultural Economics, Foundation for the European Review of Agricultural Economics, vol. 31(2), pages 125-148, June.
    56. Joe Dewbre & Jesús Antón & Wyatt Thompton, 2001. "The Transfer Efficiency and Trade Effects of Direct Payments," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 83(5), pages 1204-1214.
    57. Manuel Arellano & Stephen Bond, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Oxford University Press, vol. 58(2), pages 277-297.
    58. Subal C. Kumbhakar & Raushan Bokusheva, 2009. "Modelling farm production decisions under an expenditure constraint," European Review of Agricultural Economics, Foundation for the European Review of Agricultural Economics, vol. 36(3), pages 343-367, September.
    59. Windmeijer, Frank, 2005. "A finite sample correction for the variance of linear efficient two-step GMM estimators," Journal of Econometrics, Elsevier, vol. 126(1), pages 25-51, May.
    60. Feder, Gershon, 1985. "The relation between farm size and farm productivity : The role of family labor, supervision and credit constraints," Journal of Development Economics, Elsevier, vol. 18(2-3), pages 297-313, August.
    61. Zhu, Xueqin & Milán Demeter, Róbert, 2012. "Technical efficiency and productivity differentials of dairy farms in three EU countries: the role of CAP subsidies," Agricultural Economics Review, Greek Association of Agricultural Economists, vol. 13(1), pages 1-27.
    62. Silke Hüttel & Oliver Mußhoff & Martin Odening, 2010. "Investment reluctance: irreversibility or imperfect capital markets?," European Review of Agricultural Economics, Foundation for the European Review of Agricultural Economics, vol. 37(1), pages 51-76, March.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Moro, Daniele & Sckokai, Paolo, 2013. "The impact of decoupled payments on farm choices: Conceptual and methodological challenges," Food Policy, Elsevier, vol. 41(C), pages 28-38.
    2. Jerzy Michalek & Pavel Ciaian & d’Artis Kancs, 2014. "Capitalization of the Single Payment Scheme into Land Value: Generalized Propensity Score Evidence from the European Union," Land Economics, University of Wisconsin Press, vol. 90(2), pages 260-289.
    3. Pavel Ciaian & Edoardo Baldoni & d'Artis Kancs & Dušan Drabik, 2021. "The Capitalization of Agricultural Subsidies into Land Prices," Annual Review of Resource Economics, Annual Reviews, vol. 13(1), pages 17-38, October.
    4. Maria Garrone & Dorien Emmers & Alessandro Olper & Jo Swinnen, 2018. "Subsidies and Agricultural Productivity: CAP payments and labour productivity (convergence) in EU agriculture," Working Papers of LICOS - Centre for Institutions and Economic Performance 634340, KU Leuven, Faculty of Economics and Business (FEB), LICOS - Centre for Institutions and Economic Performance.
    5. Ondřej Dvouletý & Ivana Blažková, 2019. "The Impact of Public Grants on Firm-Level Productivity: Findings from the Czech Food Industry," Sustainability, MDPI, vol. 11(2), pages 1-24, January.
    6. Andrius Kazukauskas & Carol Newman & Johannes Sauer, 2014. "The impact of decoupled subsidies on productivity in agriculture: a cross-country analysis using microdata," Agricultural Economics, International Association of Agricultural Economists, vol. 45(3), pages 327-336, May.
    7. Marie-Noelle Duquenne & Maria Tsiapa & Valantis Tsiakos, 2019. "Contribution of the Common Agricultural Policy to agricultural productivity of EU regions during 2004–2012 period," Review of Agricultural, Food and Environmental Studies, Springer, vol. 100(1), pages 47-68, December.
    8. Viaggi, Davide & Raggi, Meri & Gomez y Paloma, Sergio, 2011. "Farm-household investment behaviour and the CAP decoupling: Methodological issues in assessing policy impacts," Journal of Policy Modeling, Elsevier, vol. 33(1), pages 127-145, January.
    9. Frýd, Lukáš & Sokol, Ondřej, 2021. "Relationships between technical efficiency and subsidies for Czech farms: A two-stage robust approach," Socio-Economic Planning Sciences, Elsevier, vol. 78(C).
    10. Zier, Patrick, 2013. "Econometric impact assessment of the Common Agricultural Policy in East German agriculture," Studies on the Agricultural and Food Sector in Transition Economies, Leibniz Institute of Agricultural Development in Transition Economies (IAMO), volume 71, number 71.
    11. Karolina Pawlak & Walenty Poczta, 2020. "Agricultural Resources and their Productivity: A Transatlantic Perspective," European Research Studies Journal, European Research Studies Journal, vol. 0(Special 1), pages 18-49.
    12. Bhaskar, Arathi & Beghin, John C., 2009. "How Coupled Are Decoupled Farm Payments? A Review of the Evidence," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 34(1), pages 1-24, April.
    13. Pavel Ciaian & d'Artis Kancs & Jo Swinnen, 2008. "Static and Dynamic Distributional Effects of Decoupled Payments," Journal of Economics and Econometrics, Economics and Econometrics Society, vol. 51(2), pages 20-47.
    14. Ciaian, Pavel & Pokrivcak, Jan, 2011. "Do agricultural subsidies crowd out or stimulate rural credit institutions? The Case of CAP Payments," Working papers 117485, Factor Markets, Centre for European Policy Studies.
    15. Carpentier, Alain & Gohin, Alexandre & Heinzel, Christoph, 2012. "Production Effects of Direct Payments to Active Farmers: a Microeconomic Dynamic and Stochastic Analysis," 123rd Seminar, February 23-24, 2012, Dublin, Ireland 122447, European Association of Agricultural Economists.
    16. O’Toole, Conor & Hennessy, Thia, 2015. "Do decoupled payments affect investment financing constraints? Evidence from Irish agriculture," Food Policy, Elsevier, vol. 56(C), pages 67-75.
    17. Marten Graubner, 2018. "Lost in space? The effect of direct payments on land rental prices," European Review of Agricultural Economics, Foundation for the European Review of Agricultural Economics, vol. 45(2), pages 143-171.
    18. Andreas Wagener & Juliane Zenker, 2021. "Decoupled but Not Neutral: The Effects of Counter‐Cyclical Cash Transfers on Investment and Incomes in Rural Thailand†," American Journal of Agricultural Economics, John Wiley & Sons, vol. 103(5), pages 1637-1660, October.
    19. Czekaj, Stefania & Czubak, Wawrzyniec & Góral, Justyna & Kagan, Adam & Majewski, Edward & Poczta, Walenty & Sadowski, Arkadiusz & Wąs, Adam, 2013. "Impact of the reformed direct payments on the Polish farms," Multiannual Program Reports 182522, Institute of Agricultural and Food Economics - National Research Institute (IAFE-NRI).
    20. V. Santoni & M. Pulina, 2016. "An analysis on the Italian agricultural firms: effects of public subsidies," Working Paper CRENoS 201611, Centre for North South Economic Research, University of Cagliari and Sassari, Sardinia.

    More about this item

    JEL classification:

    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • L00 - Industrial Organization - - General - - - General
    • Q12 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Micro Analysis of Farm Firms, Farm Households, and Farm Input Markets
    • Q18 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agricultural Policy; Food Policy

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eps:fmwppr:148. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: . General contact details of provider: https://edirc.repec.org/data/cepssbe.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Eleni Kaditi (email available below). General contact details of provider: https://edirc.repec.org/data/cepssbe.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.