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This working paper is based on the Lamasus project, mainly WP 6 and WP 8. Greater diversity in crop rotations is associated with multiple environmental benefits and is therefore included in several measures of the EU’s Common Agricultural Policy (CAP). Understanding the economic implications of policies that promote crop diversification is crucial for their design and for aligning economic and environmental objectives, particularly in light of the upcoming post-2027 CAP reform. We apply a bio-economic farm model to typical farms in the German federal state of North Rhine-Westphalia to assess the costs of different crop-rotation diversification scenarios under the CAP’s Conditionality requirements. Our results reveal substantial heterogeneity in costs across farm types, ranging, for example, from €56.63 to €152.31 per hectare for the inclusion of legumes in the crop rotation. For the dairy farm considered, the most ambitious diversification scenario even makes exiting the direct payment scheme economically advantageous. Sensitivity analyses show that the decision to exit the direct payment scheme is strongly influenced by the level of premiums and output prices. Overall, our findings call into question uniform compensation mechanisms for crop diversification, particularly in the context of agri-environmental schemes. They provide insights that can support policymakers in designing more targeted and economically viable measures under the CAP post-2027. Cite this material as Kuhn, T., Kokemohr, L., & Storm, H. (2026). How can the CAP foster crop diversification? A bio-economic farm-modelling approach. Working paper, Zenodo. https://doi.org/10.5281/zenodo.18756403 Funding acknowledgement The LAMASUS project is funded by the European Union. Horizon Europe Grant Agreement Number: LAMASUS 101060423Views are of the authors only and do not necessarily reflect those of the European Union or the European Commission. Neither the European Union nor the granting authority can be held responsible for them. Further information LAMASUS: LAnd use and MAnagement modelling for SUStainable governance │ https://www.lamasus.eu/ │ https://cordis.europa.eu/project/id/101060423