Viability of corporate farms in the New Member States in the context of CAP direct payments

This paper aims to investigate whether distributional issues within corporate farms in the New Member States will be exacerbated by the introduction of the CAP direct payments. The paper focuses on the specific impact of the payments on the land rented to the corporate farms by private landowners. If the latter are not satisfied with the level of rent they receive, they have the option to end their rental contract and withdraw their land from the farm. Before the accession to the EU the landowners did not have strong incentives to withdraw, as the other available opportunities were not associated with higher returns on land ownership. However, this situation might change as the landowners can now cash the direct payments themselves, providing they keep their land in good agricultural and environmental condition. Propositions generated by a simple game, representing the negotiations between a corporate farm manager and an individual landowner about the level of the rent, suggests that the CAP direct payments might induce more rent renegotiations but that overall withdrawals will be infrequent. The results from a survey of landowners in corporate farms in Slovakia and in the Czech Republic seemed to corroborate these a priori expectations. The investigation of the determinants of landowners' intended behaviour showed that what seems to be important in the decision–making is the relationship between landowners and managers. Landowners who have frequent contacts and close relations with the farm are less likely to withdraw.