Production Effects of Agri-environmental "Green Box" Payments: Empirical Results from the EU

Agri-environmental programs are part of the green box of the GATT Uruguay Round and are supposed to "have no, or at most minimal trade distorting effects or effects on production." In addition, "the amount of payment shall be limited to the extra costs or loss of income involved in complying with the government programme." Utilizing farm accounting data we estimate the effects on yields for ten agri-environmental programs in Austria, which account for 12% of EU's budget expenditures for agri-environmental programs. Only three out of these ten programs have significant negative effects on yields, while one program has a significant positive impact and the rest has no significant impact. These results suggest that there are serious windfall profits associated with some of these programs.