Farm size, agricultural subsidies and farm performance in Slovenia

The paper investigates the links between size, subsidies and performance for Slovenian farms. Slovenian farms have always been small and highly subsidized. A literature review is carried out for the period before accession to the European Union (EU), and new calculations with farm-level data are performed for 2004–2006, the period of adjustment to the EU's Common Agricultural Policy. Our analysis reveals that both pre- and post-accession farms’ performance measured in terms of technical efficiency is positively related to farm size in Slovenia. We find that small farms are less technically efficient but more allocatively efficient and profitable. The persistence of small farms in Slovenia may be associated with the provision of generous subsidies, which are negatively related to farms’ technical efficiency but positively related to their profitability. The decline in the number of medium-size farms which has been observed since the accession to the EU may be explained by the fact that medium farms cumulate all disadvantages in terms of performance: they are too small to be economically efficient, but they are too large to be profitable.

► Slovenian farms have always been small and highly subsidized.
► Small farms are less technically and economically efficient, but are more allocatively efficient and profitable.
► Subsidies reduce technical and economic efficiency, but favour allocative efficiency and profitability.