The impact of agri-environment schemes on farm productivity: a DID-matching approach

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.