The Role of Direct Payments in Shaping the Production Potential and Financial Performance of Dairy Farms: An Assessment for 2014–2023 in the Dominant Milk-Producing EU Countries

The primary objective of this study was to present and assess the effects of direct payments and other subsidies targeted at dairy farms under the EU’s Common Agricultural Policy (CAP) guidelines implemented in 2014–2023 on their financial performance and changes in equity. To narrow the focus on the research problem, the scope of the analysis was limited to dairy farms from the five EU countries with the highest milk production. To achieve this objective, the study employed economic measures and indicators used to evaluate the resources and outcomes of agricultural activity. The empirical material used in the analysis consisted of farm-level accounting data collected within the European Farm Accountancy Data Network (FADN). The results indicate that direct payments and other subsidies had a very substantial impact on farm income in the analysed countries. The average share of direct payments in dairy farm income in 2014–2023 in the five analysed EU countries ranged from 19.7% in Italy to 88.4% in France. Without direct payments, the average dairy farm would have incurred financial losses from its activity during periods of unfavourable economic conditions on the milk market. The new model for distributing direct payments and other subsidies introduced in 2023, whose main modification compared with the previous system was a stronger alignment of direct payments with environmental objectives, did not result in substantial changes in either the level of payments or their impact on dairy farms’ financial performance. In 2023, the average payment per hectare of agricultural land in the analysed farms amounted to EUR 461.34, which was EUR 19.88 less than in 2022.