Levelling the playing field for European Union agriculture: Does the Common Agricultural Policy impact homogeneously on farm productivity and efficiency?

- We analyze the role of CAP subsidies to deliver an efficient farm production system.
- Understanding the influence of the changing support programs on agricultural output.
- The extent to which they influence agricultural productivity convergence across EU.
- First pillar and pillar two environmental programs as drivers for productivity.
- In general, the CAP promotes technical efficiency convergence within the EU regions.

Originally conceived as a post-war policy vehicle for ensuring agricultural self-sufficiency, the Common Agricultural Policy (CAP) has evolved into a multifunctional instrument designed to satisfy a diverse portfolio of European Union (EU) policy objectives including nature protection. Notwithstanding, whilst the CAP has become more environmental and socially responsible, it is still expected to deliver an efficient farm production system capable of competing on world markets. The current paper combines a farm business panel dataset for 98 EU territories with a Stochastic Frontier Analysis (SFA) approach, to assess the impact of four contemporary broad categories of CAP subsidy programs on efficiency and environmental sustainability. In accordance with the literature, this study more correctly defines inputs as “facilitating”, whilst following recent methodological developments, crop-subsidies are treated as an endogenous strategic variable in the production function. Comparing between two discrete time periods, further tests are conducted to examine the hypothesis of technical efficiency convergence across european territories. The results suggest that first pillar crop subsidies and pillar two environmental programs generate a disincentive effect on productivity, whilst in general, the CAP promotes technical efficiency convergence within Europe.