Impact of the Green Transition on the Production of Cereals in the European Union. New Insights Based on the FGLS Panel Data Model

Abstract

Aim: The aim of this study is to econometrically assess the long-term impact of Green Deal-related regulatory areas on cereal crop production in European Union countries. Methods: The study is based on an analysis of panel data for 21 European Union countries for the period 1995–2021. The FGLS, PCSE and CCEMG models, which are robust to heteroskedasticity and cross-sectional dependence, were used to determine the impact of agricultural CO2 emissions, agricultural area, food production volumes and fertilizer consumption on cereal production. In addition, a robust test of the Westerlund ECM panel test model was applied to confirm cointegration. All models were bootstrapped to strengthen the results. Results: The results show that, in the long run, a 10% increase in CO2 emissions from agriculture leads to an average decrease in cereal production of 0.5%. A 1% increase in cultivated area leads to a 1.1% positive change in the value of cereal production, and a 1% increase in fertilizer use per hectare leads to a 0.38% increase in cereal production. The value of the food production index also shows a positive effect on cereal production. If the index increases by 1 p.p., cereal production increases by 1.13% in the long term. The study also found a positive relationship between an increase in the share of renewable energy and the volume of cereal production. If the share of renewable energy increases by 1%, the volume of cereal production in the EU countries increases by 0.11%. Conclusions: Overall, it can be concluded that the green transformation brings both negative and positive aspects of change to agriculture. The decrease in cultivated land and reduced use of artificial fertilizers may negatively impact farm productivity in crop production areas. On the other hand, the improvement of climatic conditions and the development of renewable energies could be beneficial for agriculture in the long term. The study is original in the sense that it fills an empirical and theoretical gap related to the verification of the impact of the Green Deal on the cereal production sector and thus on agriculture in the European Union.