What is it about?

The effect of subsidies on the performance of farms has received a great deal of attention in the literature, although results are inconclusive. Furthermore, much of the related literature examines the effect of subsidies only on technical efficiency (TE). We examine the effect of different types of subsidies (investment, less favoured area (LFA) and agro-environmental (AE) subsidies) on the different components of total factor productivity (TFP) in Slovenia.

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Why is it important?

Previous research examining the effect of agricultural subsidies typically neglects the effect of technological heterogeneity when calculating TE or TFP and attributed differences in the production environment or technology to differences in TE or TFP. However, several studies have shown at both a macro- and micro level. that the assumption of homogeneous technologies might lead to biased efficiency and/or productivity estimates, and therefore inadequate policy recommendations.We estimate models taking into account these defficiences. Our findings suggest that the rural development (RD) subsidies we examine here do not significantly affect overall farm productivity as measured by TFP.


Deeper investigation of rural development (RD) policy choices is an issue for further research. Another task for future research is to conduct comparative analysis of the two RD programming periods 2007–2013 and 2014–2020, and carry out related cross-country analysis and comparisons. Also among the tasks for later research is an examination of the potentially indirect, multiple effects of subsidies on farms and rural areas. Agricultural subsidies represent not only important but also rather stable sources of farm income, which may have an effect on different farm and non-farm economic activities and farmer household well-being. In terms of costs and benefits for farms, rural areas and society, there may be trade-offs between agricultural policy measures and their related subsidies and alternative policy measures

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

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This page is a summary of: The Effect of Investment, LFA and Agri‐environmental Subsidies on the Components of Total Factor Productivity: The Case of Slovenian Farms, Journal of Agricultural Economics, April 2020, Wiley, DOI: 10.1111/1477-9552.12374.
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