Reforming the CAP—With area-based payments, who wins and who loses?

Abstract

This paper reports on the use of a spatial analysis framework to assess the consequences for business incomes of alternative area-bases for Pillar 1 CAP Single Farm Payments, integrating spatial data from both biophysical and socio-economic domains. The results from the Scotland analysis are likely to have wider significance for policy makers confronting decisions on how best to implement reforms of Pillar 1 CAP payments elsewhere in the EU. Introduction of area-based payment to replace historic entitlement is particularly challenging in regions with a wide range of bio-physical conditions that are spatially heterogeneous and only weakly related to intensity of agricultural use, management or previous support. The analysis shows that, while the basis of payments and payment rates can have substantial effects on the nature of the impact, it is the change to an area-based payment system alone that has the biggest redistributive impact. For Scotland, there are larger numbers of businesses that gain rather than lose, and, because the average losses are much larger than the average gains, a move towards area-based payments is likely to encounter strong opposition and only weak support from the agricultural community. In all the options for area-based payments examined, there is substantial redistribution between agricultural sub-sectors and between geographical regions. Substantial reductions in support affect agricultural sub-sectors that are significant for the wider agri-food sector (cereals, general cropping, dairy and lowland livestock) and regions where agriculture plays a significant role in the economy (particularly south-west Scotland). Yet the greater redistribution quantified by this research is within sub-sectors; that is from businesses with more intensive management to those with more extensive. Such within-sector redistributions will have policy significance and mean that analysis of the consequences of area-based payment options conducted only at sub-sectoral level is likely to be inadequate. It is concluded that the analysis approach used has successfully revealed the potential consequences of area-based CAP support payment options and this has been of direct value by informing ongoing negotiations on reform of the CAP. However, the research also highlights the serious challenges that remain in defining schemes that meet the objectives of policy makers, can be administered cost-effectively and are politically acceptable. The research may thus have implications for other EU member states considering how best to implement area-based Pillar 1 payment schemes.