How EU Farm Subsidies Shape Agricultural Competitiveness

Agricultural production subsidies have long been a cornerstone of European Union (EU) policy, aimed at stabilizing markets, supporting rural economies, and enhancing agricultural productivity. However, the effectiveness of these subsidies in fostering export competitiveness remains a subject of debate. In a 2024 research paper co-authored with Gabriella Juzyniec and Aden Gill of the University of British Columbia, we empirically analyzed agricultural subsidies in the EU from 2018 to 2023, investigating their impact on export competitiveness across 22 member states. Our findings challenge conventional wisdom, showing that subsidies do not significantly influence a country's agricultural export success. Instead, factors like overall economic strength play a larger role in shaping competitiveness.

The Role of Agricultural Subsidies in the EU

The EU’s agricultural sector benefits from subsidies distributed through the Common Agricultural Policy (CAP), which aims to maintain a steady food supply, support farmers, and enhance trade performance. However, these subsidies are not uniformly administered across member states. While some countries—such as France, Germany, and the Netherlands—boast highly efficient agricultural industries, others, particularly in Central and Eastern Europe, struggle with fragmented agrarian structures and lower productivity. This disparity raises an important question: Do higher subsidies translate to stronger export competitiveness?

Investigating the Relationship Between Subsidies and Exports

To explore this, we conducted a multivariate regression analysis using export competitiveness as our dependent variable. Our independent variables included agricultural subsidies, GDP, GDP per capita, agricultural productivity, and a control variable for the COVID-19 pandemic. Surprisingly, our findings indicated that variations in subsidies had no statistically significant impact on export competitiveness. Instead, GDP and GDP per capita emerged as the strongest predictors of a country's ability to compete in agricultural exports.

Key Findings

1. No Direct Link Between Subsidies and Export Competitiveness

   • The regression analysis showed that fluctuations in subsidy levels had an insignificant effect on export performance. This suggests that merely increasing subsidies is unlikely to enhance a country’s ability to compete in global agricultural markets.

2. Economic Strength Matters More

   • Countries with higher GDP and GDP per capita exhibited stronger export competitiveness. This finding implies that broader economic factors—such as infrastructure, labor markets, and investment climates—play a more significant role than subsidies in shaping trade outcomes.

3. The Role of Agricultural Productivity

   • Interestingly, higher agricultural productivity was associated with lower export competitiveness. While this may seem counterintuitive, it suggests that productivity gains do not necessarily translate into stronger international market positions. One potential explanation is that productivity improvements may primarily serve domestic markets rather than boosting exports.

Policy Implications

Our findings indicate that EU policymakers should reconsider their approach to agricultural subsidies if their goal is to improve export competitiveness. Instead of a one-size-fits-all subsidy framework, a more tailored approach that considers each country’s economic context and structural challenges may be more effective. Additionally, integrating trade policy tools—such as improved market access, infrastructure investment, and trade agreements—could provide a more holistic strategy for enhancing agricultural exports.

Future Research Directions

While our study provides valuable insights, several questions remain unanswered. Future research could:

• Differentiate between types of subsidies (e.g., direct payments vs. investment aids) to determine their specific effects on trade.

• Integrate trade policy variables such as tariffs and free trade agreements to understand their interaction with subsidies.

• Explore how domestic consumption patterns influence agricultural export competitiveness.

Conclusion

The assumption that increasing agricultural subsidies will naturally lead to stronger export competitiveness is not supported by our research. Instead, broader economic factors, such as GDP and GDP per capita, play a more significant role. As the EU continues to refine its agricultural policies, a more nuanced approach—one that considers economic context, productivity levels, and trade policies—will be essential in ensuring a competitive and sustainable agricultural sector.