Joint Production of Environmental and Market Outputs: Insights into Farm Multiple-Output Flexibility - Discussion paper

Abstract The study examines the relationship between environmental subsidies and farmers’ motivations in selected European Union (EU) countries. Building on the hypothesis that agri-environmental commitments generally require substantial changes in production technology, the study analyses economies of scale, economies of scope, and output cost complementarities across four EU countries. These concepts are examined using stochastic Input Distance Function (IDF) models estimated through the Generalised Method of Moments (GMM), based on data from the Farm Accountancy Data Network (FADN) covering the period 2008–2021. The results indicate that diseconomies of scope prevail across all analysed countries, suggesting that the joint production of environmental and market outputs does not generate cost savings. Moreover, larger farms exhibit more pronounced diseconomies of scope and, consequently, weaker incentives to adjust their production structures towards environmental provision. In contrast, smaller farms are characterised by lower flexibility and, therefore, a reduced capacity to adapt their production structures to changing conditions. Key words: agriculture, environmental output, output flexibility, duality, input distance function. Further information can be acquired in deliverable 4.2. Citation Žáková Kroupová, Z., Cechura, L., Hálová, P., & Pánková, L. (2026). Joint Production of Environmental and Market Outputs: Insights into Farm Multiple-Output Flexibility - Discussion paper (Version v01). BrightSpace Horizon Europe project GA Nr. 101060075. https://doi.org/10.5281/zenodo.19641096 ----------------- Funding acknowledgement Funded by the European Union. Grant Agreement No. 101060075. Views and opinions expressed are those of the authors only and do not necessarily reflect those of the European Union or the European Commission. Neither the European Union nor the granting authority can be held responsible for them. Legal notice This document was produced under the terms and conditions of Grant Agreement No. 101060075 for the European Commission. It does not necessary reflect the view of the European Union and in no way anticipates the Commission’s future policy in this area. The European Commission is not liable for any consequence stemming from the reuse of this publication. © BrightSpace, 2026 The reuse of this document is authorised under a Creative Commons Attribution 4.0 International (CCBY 4.0) licence (https://creativecommons.org/licenses/by/4.0/). This means that reuse is allowed provided appropriate credit is given and any changes are indicated. For any use or reproduction of elements that are not owned by the BrightSpace consortium, permission may need to be sought directly from the respective right holders. Project information BrightSpace Horizon Europe project Grant Agreement No. 101060075 https://cordis.europa.eu/project/id/101060075 CALL: Innovative governance, environmental observations and digital solutions in support of the Green Deal WORK PROGRAMME Topic ID: HORIZON-CL6-2021-GOVERNANCE-01-12 EU agriculture within a safe and just operating space and planetary boundaries BrightSpace Project coordination: Wageningen Economic Research, The Hague, NL Contact: brightspace.wser@wur.nl | Website: www.brightspace-project.eu Project duration: 1 November 2022 – 31 October 2027.