According to WTO standards, agri-environmental schemes (AES) payments should distort neither trade nor production but instead only compensate for income forgone and costs incurred. At the same time, contract design shall give farmers enough flexibility to react to changing market and production conditions. We apply a difference-in-difference propensity score matching estimator to test if AES have an unintended effect on farm productivity. Our results suggest that schemes designed for arable land overcompensate farmers and thus do fail to comply with WTO rules. For dairy farms, we find that AES participation reduces farm productivity, implying that action-based scheme design not considering changing market and production situations might be too restrictive, potentially preventing farmers from participating.

Legislators in the European Union have long been concerned with the environmental impact of farming activities and introduced so-called agri-environment schemes (AES) to mitigate adverse environmental effects and foster desirable ecosystem services in agriculture. This study combines economic theory with a novel machine learning method to identify the environmental effectiveness of AES at the farm level. We develop a set of more than 130 contextual predictors to assess the individual impact of participating in AES. Results from our empirical application for Southeast Germany suggest the existence of heterogeneous, but limited effects of agri-environment measures in several environmental dimensions such as climate change mitigation, clean water and soil health. By making use of Shapley values, we demonstrate the importance of considering the individual farming context in agricultural policy evaluation and provide important insights into the improved targeting of AES along several domains.

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This paper provides detailed farm level data evidence on the dynamics of farm performance from case studies covering crop farms in Australia, France, Italy and the United Kingdom (England and Wales), and dairy farms in the Czech Republic, Denmark and Norway, with different recent sample periods of five to thirty years. An increase in productivity over time is common to all countries and most crop farm classes, but productivity dynamics vary significantly. In Australia, strong productivity growth among the most productive crop farms has led to an increase in the gap between the highest and lowest performing farms; whereas in France, Italy and the United Kingdom, productivity growth was weak among the most productive crop farms and the lowest performing farms closed the productivity gap. Productivity also increased among dairy farms, with an increasing gap between the most and the least productive farm classes in the three sample countries. The impact of policy changes on performance dynamics is analysed for decoupled payments in France and England, and dairy payments in the Czech Republic. The main findings across countries and policy implications are discussed in OECD Food, Agriculture and Fisheries Paper N°164.