Understanding the determinants of investment reactions to decoupling of the Common Agricultural Policy

The objective of this paper is to identify the determinants of the reactions of farm households to the decoupling of the Common Agricultural Policy (CAP) focusing, in particular, on changes in on-farm investment behaviour. The paper analyses a sample of 248 farm-households in 8 EU countries, using a non-parametric approach based on classification tree algorithms. The factors emerging as determinants of an increase in on-farm investment as a reaction to decoupling are: specialisation, existence of a successor, the farmer's age, labour management, SFP per hectare, location and expectations. When used, country variables, tend to substitute some of the factors listed above and become the main predictors, followed by labour endowment, specialisation and expectations. While the study confirms the relevance of the main determinants available from the literature, it also emphasises the articulation (non-linearities) of the effects of farm head age, labour management and SFP per hectare on the reactions to decoupling. This hints at the need for further research on the way such factors combine in determining farm-household reactions to a changing market and policy context, and support the usefulness of non-parametric statistics tools for such types of analysis.