BEYOND DIRECT SUPPORT: DO SUBSIDIES MITIGATE COST INEFFICIENCIES IN ORGANIC FARMING? EVIDENCE FROM MOLDOVA

Abstract

Organic farming faces persistent efficiency challenges due to high production costs and structural constraints, particularly in transition economies. This paper examines the determinants of technical efficiency in organic farming in Moldova, with emphasis on subsidy allocation. Using farm-level data for 33 certified organic producers, technical efficiency scores are analyzed within a fractional logit framework. The analysis incorporates production costs, financial performance indicators, labor input, farm size, and subsidy types. Production costs constitute a major source of inefficiency, consistently associated with lower technical efficiency. Revenues and profits exert a positive and statistically significant effect, indicating that financially stronger farms operate closer to the efficiency frontier. Labor input is negatively related to efficiency, pointing to persistent labor inefficiencies and limited mechanization. Aggregate subsidies do not display a significant direct effect; however, when interaction effects are incorporated, subsidies mitigate the negative impact of production costs. Subsidies targeted at organic land conversion exhibit a strong positive effect on efficiency. Thus, subsidy effectiveness depends less on aggregate support levels and more on how subsidies interact with farm cost structures, providing policy-relevant insights for transition economies.