Can agricultural policy achieve environmental goals through an indicator-based direct payment system?

Indicator-based frameworks for assessing farms' environmental performance have become a resource for environmental knowledge regarding the impacts of agricultural practices. The present study explores whether a novel indicator-based direct payment system, which focuses on the farms' environmental impact, could better target Swiss agricultural policy and help achieve its environmental goals. The system covers the environmental topics of biodiversity, nutrients and climate, plant protection products, and soil. Despite high direct payments, simulations with an agent-based agricultural sector model show that such indicator-based payments have a limited impact. For example, the decrease in the animal population is only moderate. Though direct payments alone can hardly lead to the desired reduction in Switzerland's environmental pollution, they could help make important contributions to a more targeted distribution of environmentally oriented direct payments and steer agricultural production in a more environmentally friendly way.