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Abstract

The European Union’s Common Agricultural Policy is currently undergoing a reform process which inter alia aims to achieve a higher environmental standard in agricultural production by binding direct payments to practices beneficial for the climate and the environment (the so-called ‘greening’). Some experts as well as some farmers doubt the effectiveness of the proposed measures. I simulate how farms would respond to these measures using a case study farm modeling approach and data for different farm types in Germany. I find that the currently envisaged ‘greening’ measures can be expected to function in general due to the linkage to the direct payments, which provide a strong disincentive to forego participation. The individual economic outcome strongly depends on the current intensity of the farm in question and on the implementation details of the introduced measures. However, farms with very high gross margins per hectare will forego the support scheme.

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