Impact Analysis of the EU Decoupling Policy with Agricultural-Geographical Information : An Application to the Less Favoured Areas (LFAs) in Northern England

Abstract

After the McSharry reforms in 1992, further emphasized in Agenda 2000, EU agricultural policy has shifted from a commodity specific price support system to one where income support is decoupled from production in order to avoid market distortions and environmental pollution. Little empirical evidence based on regional analysis exists about the consequences of this significant policy change. The purpose of this paper is to predict upcoming change of agriculture in the Less Favoured Areas (LFAs) caused by the reforms. First, a brief instruction for the analytical use of agricultural and geographic statistics in the U.K. is given, then six years of panel data from a Farm Business Survey (FBS) in Northern England are prepared with the aid of GIS. Second, Cobb-Douglass production functions are estimated through which probable combination of agricultural inputs and outputs is simulated with an assumption of farmer's profit maximization. The result shows significant shifts toward extensive farming based on sheep production rather than beef cattle rearing.JEL Classification: Q12, Q18, R14