The impacts of agricultural payments on groundwater quality: Spatial analysis on the case of Slovenia

The European Common Agricultural Policy still follows its primary goals, i.e. quality food at affordable prices and a decent standard of living for farmers, fifty years after its adoption. Moreover, this policy adapts to the changing needs of society and the new challenges, mostly preservation of the environment, nature and biodiversity in rural areas. Although the Common Agricultural Policy receives the largest share of European budget, the funds are decreasing over time, especially direct payments, which aim to provide basic income support to farmers in the European Union. On the other hand, agri-environmental payments are gaining importance. Policy decision-makers should be interested in the question of impacts of growing eco-conditionality of agricultural spending. New insights would help them to be successful in achieving the goals of sustainable agriculture. The purpose of this paper is to estimate the impacts of production support payments and rural development payments on the quality of groundwater. We use the small EU country Slovenia as an example. The baseline indicators are the level of nitrates and pesticides in groundwater, while the impacts were estimated using spatial error model. The results show that direct payments, coupled subsidies and investment grants raise the level of pesticides in groundwater, but do not have any statistically significant impact on the level of nitrates in groundwater. Furthermore, we did not find any statistically significant effects of agri-environmental payments on decrease of groundwater pollution with nitrates. However, our findings revealed that agri-environmental payments are effective in reducing pesticides in groundwater, although only to a limited extent. These results imply a problem of insufficient targeting of agri-environmental measures on the one hand, and suggest that greening of direct payments is necessary and entirely justified.