Do farm subsidies improve labour efficiency in farms in EU countries?

Abstract

PURPOSE: Agricultural support programmes most commonly aim at attaining higher production of raw food materials or supporting processes resulting in agricultural yield. One of the most important challenges is to increase labour productivity, thanks to which working in the agricultural sector may be attractive in comparison with working in the nonagricultural sector. In literature, in the scope of agricultural economy, there is a lack of consistent results concerning the relation between the level of subsidies for operational activity and labour productivity in agriculture. The question arises whether or not subsidies for agriculture help achieve the intended results in the form of an increase in labour productivity. This reasoning gave rise to this study, which aimed at indicating the directions and strength of association between subsidies for operational activity on farms expressed per one employed and the attained labour productivity.

DESIGN/METHODOLOGY/APPROACH: The study was carried out for EU countries divided into quartile groups defined according to labour productivity. Data from the Farm Accountancy Data Network for the period 2013-2018 were applied, and for analysis the panel regression method (with random effects) was used.

FINDINGS: It was found that together with an increase in labour productivity, the direction and the strength of impact of direct subsidies also altered. On farms of countries with a lower labour productivity, no significant relation was found. However, for the quantile groups Q2 and Q3, an increase in the level of labour productivity resulted in a positive, yet decreasing impact of subsidies. On farms of countries with the lowest labour productivity, a negative impact of subsidies was observed.

PRACTICAL IMPLICATIONS: The conducted analysis gives reason to state that farms that have attained a high level of development, subsidies do not lead to a further growth of productivity, but only support the maintenance of the same level of farm income.

ORIGINALITY/VALUE: The assessment of whether and under what conditions the subsidies bring the intended effects allows for a change in the directions of support in order to obtain better effects from spending public funds. The research was conducted for a long period of time for a group of all EU countries.