Epsilon Archive for Student Projects

Abstract

Despite ambitious political goals within the European Union's Common Agricultural Policy (CAP), Sweden's organic agricultural land area has recently experienced a significant structural decline. This study evaluates the effectiveness of agri-environmental subsidies as an economic steering mechanism for promoting organic land conversion, examining whether financial policy measures or market-driven opportunity costs exert the primary influence on farmers' structural decisions. The empirical framework uses a balanced panel dataset comprising 1,008 observations across Sweden’s 21 counties from 2010 to 2024, analyzed with a two-way Fixed-Effects regression model to absorb region- and time-specific heterogeneity.

The baseline regression reveals a statistically significant positive relationship between financial support and total organic acreage, indicating that increases in subsidies drive aggregate organic expansion. Specifically, the key operational coefficient of approximately 33 means that for every one million SEK increase in regional subsidies, the organic land area is expected to expand by roughly 33 hectares, holding all other variables constant. However, the crop-specific robustness checks uncover substantial heterogeneity: while winter wheat and spring barley are highly responsive to policy adjustments, oats are driven entirely by market-based structural factors. These findings indicate that flat-rate subsidies lose their economic steering capacity during conventional market price surges, making this study highly valuable for agricultural policymakers seeking to design more dynamic, market-flexible policy instruments.