Modelling the impact of the CAP Single Farm Payment on farm investment and output

This paper analyses the impact of the Common Agricultural Policy arable crop regime on farm investment and output, introducing explicitly farmers’ risk attitudes into a dynamic dual model of farm decision-making. Estimation and simulation results are based on a Farm Accounting Data Network sample of Italian arable farms. The main finding is that an increase in intervention price would significantly affect farm investment, mainly through reduced price volatility, while policy changes not affecting price uncertainty, like an increase in the Single Farm Payment, would have a much smaller impact.