Can Subsidies Displace the Need to Improve Productivity as a Source of Income Maximization? Evidence From Poland

Aim: The article addresses the fundamental issue of agricultural producers’ choice regarding two sources of income maximisation, i.e. economic rent resulting improving labour productivity and political rent as an expression of the institutional conditions in force. In particular, attention is focused on the possible substi­tutability between economic and political rents. Methods: The effect of displacement of economic rent by political rent was measured for Polish farms by economic size class in the period 2008–2015, using inverse probability of treatment weighting, based on a counterfactual approach. Results: The study indicated that despite the fact that farms with improved labour productivity achieved higher incomes, in some years there was a significant displacement effect of the economic rent by the political rent. This meant that significantly higher incomes were earned by inefficient farms whose operations linked to production were supported by agricultural policy instruments than by unsubsidised farms where labour productivity increased. As farm size increased, the need to improve productivity was thus replaced more often and on a larger scale by the use of agricultural policy mechanisms. Conclusions: The results confirmed the conclusions of studies carried out in other countries, thus indicating the possible contribution of agricultural policy to undermining the need to improve productivity as a source of maximising agricultural income. So while farm incomes should be supported, if only because of the persistent disparity between incomes from agriculture and those from other sectors of the economy, there is still room for improvement in the efficiency of public expenditure allocation.