Abstract
The EC set‐aside programme is supposed to reduce the EC cereal surplus and, thus, expenditure. The main objective of this paper is to investigate whether these financial expectations will materialise. It may well be that the European taxpayer and the EC Commission will save money, but probably all EC member states will lose. The outcome depends on the level of world market prices and the specifics of implementation.The premiums paid per hectare of idled land will be higher than necessary if high administrative costs preclude their direct relation to income actually foregone (overcompensation effect). Moreover, idled acreage will have below‐average yields, thus increasing the yield per ha on the hectares remaining under cultivation (structure effect). Finally, agricultural production per ha will increase if the set‐aside programme induces higher use of variable input (intensification effect). Given the export restitutions for wheat prevailing in Jan./Feb. 1988 all national governments will have to bear an additional financial burden. However, they can use the latitude granted by the EC regulations to minimise this burden.
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