Impact of CAP Subsidies on Technical Efficiency of Crop Farms in Germany, the Netherlands and Sweden


  • Xueqin Zhu,

  • Alfons Oude Lansink

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    • Xueqin Zhu and Alfons Oude Lansink are with the Department of Social Sciences, Wageningen University, Wageningen, The Netherlands. E-mail: for correspondence. This study was completed with financial support from the European Commission for an EU project (CARERA) under contract number 022653. The authors acknowledge the European Commission, Directorate-General Agriculture, Unit AGRI.G.3 for providing the FADN data for this analysis. The authors thank Cornelis Gardebroek for help with the stata code for bootstrapping and Grigorios Emvalomatis for the marginal effects. The authors also acknowledge the Editor and two anonymous referees for the very helpful comments on previous versions of the paper, although any remaining errors are the sole responsibility of the authors.

  • [Correction added after online publication, 10 June 2010: supporting information added to article.]


This paper analyses the impacts of CAP reforms, particularly subsidies on technical efficiency of crop farms. An output distance function is employed and estimated together with an inefficiency effects model to capture the effects of CAP subsidies and farmer characteristics on farm efficiency. The model is applied to FADN data (period 1995–2004) of crop farms in Germany, the Netherlands and Sweden. The study shows that the 10-year average technical efficiency is 64% in Germany, 76% in the Netherlands and 71% in Sweden. The average annual changes in technical efficiency are 0.1%, 0.4% and 2.3%, respectively. The share of crop subsidies in total subsidies has a negative impact on technical efficiency in Germany but a positive impact in Sweden, although insignificant in the Netherlands. The share of total subsidies in total farm revenues has negative impacts on technical efficiency in all three countries, consistent with income and insurance effects. Positive (negative) change in technical efficiency is mainly attributable to farm size (degree of specialisation) in Germany, and degree of specialisation (degree of subsidy dependence) in the Netherlands and Sweden.