The effect of environmental regulations on Swiss farm productivity

This paper analyzes the evolution of Swiss farm productivity during the implementation of environmental policy reforms, when subsidization of farms became dependent on compliance with environmental regulations. We employ a production model formulation with technology parameters defined as the functions of subsidies, as well as individual farm characteristics. Our estimates for two groups of farms – dairy and crop farms – show that payment of subsidies via compliance in environmental regulations induced major changes in the production technology and productivity of inputs, especially land, labor and fertilizer. The overall effect of the subsidies on the output has been found to be negative. Additionally, we find that farms do not use their resources optimally, indicating some deficiencies in structural adjustments, primarily in the land and labor markets.