Sustainable Economic Development of Farms in Central and Eastern European Countries Driven by Pro-investment Mechanisms of the Common Agricultural Policy

Abstract

Improvements in sustainability at the farm level are the basic driver of agricultural sustainability at the macro level. This is a challenge that can only be met by farms which efficiently process inputs into products. The increase in the efficiency of European farms is largely conditioned by measures taken under the Common Agricultural Policy (CAP), especially its second pillar. The purpose of this study was to determine the net effect of pro-investment instruments available under the second pillar of the CAP in selected Central and Eastern European countries. Unpublished Farm Accountancy Data Network (FADN) microdata provided by the European Commission’s Directorate-General for Agriculture and Rural Development (DG AGRI) were used as the source material. The study presented in this paper is unique in that the research tasks are based on unpublished microdata of selected Central and Eastern European farms. The study relied on the Propensity Score Matching approach; the net effect of pro-investment mechanisms was analyzed using productivity and profitability indicators calculated for farms which have been keeping FADN records for a continuous period of no less than 6 years. As shown by the study, structural funds available under the CAP clearly provided an investment incentive for farms. The conclusion from the assessment of changes in the availability of productive inputs is that the beneficiaries reported a greater increase in fixed asset value and in farm area in all countries except for the Czech Republic and Slovakia. The comparative analysis of countries covered by this study failed to clearly confirm that labor is substituted with capital to a significant extent. Every country covered by this study experienced a noticeable negative net effect on both the productivity and profitability of capital. When considering all the countries, the beneficiary group has no clear advantage over the control group in terms of changes in land and labor productivity and profitability (a statistically significant positive effect was recorded for land productivity and profitability in Slovenia). As regards labor, a statistically significant positive net effect (a difference in growth rate between the beneficiary group and the control group) was recorded in Slovenia, but also in Poland, where beneficiary farms reported a greater increment in labor profitability and reduced the negative difference in labor productivity.