Disinvestment, Farm Size, and Gradual Farm Exit: The Impact of Subsidy Decoupling in a European Context

Abstract

The recent reform of the Common Agricultural Policy, which decouples farm subsidies from production, is expected to impact on farmers' production decisions. We perform a cross‐country farm‐level empirical analysis of farmers' production responses to these reforms using a panel dataset for the EU15 countries for the period 2001–2007. We apply quasi‐experimental empirical methods and find that the probability of a farm disinvesting decreased due to the policy change for most farms. However, the policy change facilitated exit for farms engaged in livestock production and those that were already in the process of leaving the sector.

Keywords: difference-in-differences, disinvestment, farm exit, farmland reduction, subsidy decoupling