CAP payments and spatial diversity in cereal crops: An analysis of Italian farms

Agricultural biodiversity conservation has been recognized as a fundamental resource for the maintenance of ecological and economic functions. In this paper, we test the hypothesis that the Common Agricultural Policy (CAP) has an impact on crop diversity decisions of farm managers. In so doing, we allow the diversity decision to depend on a rich set of economic and agro-ecological variables, such as prices of the most common cereal varieties, and agro-ecological and socio-economic characteristics at farm and regional level. Using a panel dataset over the period 2004-2010, we compare the results obtained from pooled-OLS and dynamic panel GMM estimators. The empirical analysis shows the existence of a positive relationship between CAP payments and diversity. In addition, decoupling subsidies from production seems to have a positive effect on biodiversity.