Impacts of set-aside restoration on production and incomes of Czech farmers

Abstract

The creation of the Common Agricultural Policy (CAP) reflected the situation after the Second World War, when the states of the European Community were unable to ensure a sufficient level of production. However, the mechanism of the CAP caused extreme overproduction. One of the regulatory measures was the set-aside of a stated percentage of agricultural land. This was accompanied by subsidies to compensate for the loss of the production. This measure – originally voluntary, but later obligatory – was cancelled during the Health Check of the CAP in 2008. Currently there is discussion of its restoration. The article analyses how set-aside and the distribution of subsidies are reflected in the economic situation of agricultural subjects in the Czech Republic. It focuses on the effects of reducing the area of agricultural land with the obligatory setting aside of 7% of such land. The opportunity costs (revenue which farmers would gain if they were able to farm the set-aside land and sell the products on the market) were compared with the benefits in the form of subsidies. The worst impact was proved to be on the largest farms. However, lost profit from their non-realized production is compensated by subsidies to these farms, too.