Economic theory suggests several possible mechanisms through which direct government farm payments might influence the efficiency and structural change in agriculture. This study estimates identify the main determinants of efficiency, particularly, what effect farm payments have had on efficiency and farm structure by using a farm-level Tobit model for 1990 to 2001. The results suggest that the inclusion of direct payments does not cause a change in returns to scale of the underlying technology. Nevertheless, results find evidence of effects of direct payments on efficiency. Farms that received greater direct payments were less efficient on aggregate than other farms.