The economic effect of the introduction of direct subsidies of the CAP’92 reform is analyzed in this paper using semi parametric and non-parametric methods. The estimated models explain the impact of the direct payments on efficiency and environmental adaptation for animal orientated farms before and after the reform. We also study the relationship with other factors such as economic size. We use large samples of individual farms with joint animal and vegetal production in Spain, which are of special interest due to their relevance for Mediterranean forest and grazing land preservation.

Using non parametric methods we do not restrict the production functions of the farms, e.g. when calculating effects on efficiency. Even though the direct payments increased sharply after the CAP’92, in general, the new direct payment system turns out to be insufficient to offset the fact that less environmentally friendly farms remain much more “efficient,” i.e. profitable for the farmer. Contrarily, after the CAP’92 reform, the subsidy schedule was even more correlated with farm size than before, which we find to be counterproductive.

Palabras clave / key words: Common Agricultural Policy , subsidies , Efficiency , non-parametric methods , natural resources , environmental economics