What is it about?

The transformation of agriculture, agricultural support, credit and rural finance systems in the Central and Eastern Europe have been complex undertakings. Investments play an important role in the process of agricultural and farm modernization and restructuring, and they can be driven by subsidies on investment, This paper investigates the investment behaviour of dairy farms in Estonia, Hungary and Slovenia.

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Why is it important?

This study focuses on whether soft budget constraints persists (SBC), and how it varies between countries with different dairy farming structures and historical-institutional legacies in the new context of Common Agricultural Policy (CAP) subsidies in the post-EU accession period. The importance of CAP investment subsidies and SBC-related differences among the countries under study were confirmed, while the investment decisions of dairy farms were found to be constrained by the availability of finance.


Any reform of CAP instruments that involves a reduction in subsidies might constrain dairy farm investment and increase dairy farm exit, not only in the three economies analysed here, but in EU agriculture in general. Investments in dairy farms are assets-specific and are often made in remote, hilly and mountainous areas where alternative business opportunities can be rather limited. One policy issue for further research is therefore in determining whether the less costly subsidization of dairy farm investment alternatives is possible.

Professor Imre Ferto
Centre for Economic and Regional Studies, Hungarian Academy of Sciences: Budapest

Read the Original

This page is a summary of: The investment behaviour of dairy farms in transition economies, Baltic Journal of Economics, January 2021, Taylor & Francis, DOI: 10.1080/1406099x.2021.1920754.
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