Agri-environmental schemes reduce variable input costs: Evidence from Slovenian farms

Agri-environmental schemes (AES) are central policy instruments designed to promote environmentally friendly agricultural practices by financially supporting the adoption of sustainable land management. While a substantial body of research examines how AES influence environmental outcomes and overall farm performance, far less is known about their direct effects on farm-level variable input costs, particularly in terms of energy, fertilizer, and crop protection expenditures. Existing studies typically analyse eco-efficiency or broad economic-environmental indicators, leaving a critical empirical gap regarding whether and how AES reshape the cost structure of farms during and after adoption. This study addresses this gap by estimating the causal impact of AES participation on key variable input costs using Slovenian Farm Accountancy Data Network data and a Differences-in-Differences (DID) design with staggered adoption, supported by robustness and sensitivity analyses. The findings indicate that AES participation leads to significant reductions in pesticide and energy costs, while fertilizer expenditures tend to increase in the short term before stabilizing or declining over time. These patterns suggest that AES trigger structural adjustments in production—such as reduced tillage intensity and transitions to organic or biological inputs—that can initially raise some input costs but contribute to longer-term sustainability. The study therefore offers new empirical evidence on the cost implications of AES, improving understanding of how environmental policy instruments affect farm-level economic decisions. These insights are essential for designing AES that support both environmental objectives and the economic viability of farmers, particularly in regions where sustainability transitions may involve short-term trade-offs. • Agri-environmental schemes (AES) reduce energy and crop protection costs. • Participation in AES shifts focus to less intensive tillage and sustainable farming. • Yield trade-offs from AES may affect short-term farm profitability. • AES help reduce variable chemical input use, boosting agricultural sustainability. • Complementary policies needed to balance yields, economic and environmental goals.