The 2003 Mid Term Review of the Common Agricultural Policy: A Computable General Equilibrium Analysis for Ireland

Abstract

A Computable General Equilibrium (CGE) model of the Irish economy is built and used to analyse the 2003 Mid Term Review (MTR) of the Common Agricultural Policy. The MTR represents significant reform of agricultural policy in the EU, and has generated widespread interest and numerous studies of its anticipated effects. Economists have employed a variety of modelling approaches, encompassing single and multi-country general and partial equilibrium models. This research contributes a dedicated single country CGE modelling analysis of the MTR for Ireland. IMAGE2 is a CGE model with particular emphasis on the agriculture and food processing sectors, and the careful representation of CAP instruments. The database is the most detailed and current CGE database of the Irish economy. Results from the simulation indicate that agricultural activity will decline following the implementation of the MTR. In particular, labour use in the sector will fall, as some agricultural workers seek off-farm employment and others cease to work. Despite the decline in agricultural activity, the continuation of subsidy support ensures that gross value added at factor price is maintained, and even increases slightly in the short run. There is a change in primary factor usage in agriculture, with significant extensification stimulated by the MTR. Within the sector, there are large changes in the composition of agricultural output. Reductions in output of the previously subsidised products, cattle, sheep and cereals, are accompanied by an increase in output of other agricultural goods such as other livestock, fruits and vegetables, and forestry. Advance estimates of agricultural activity in 2005, the first full year of decoupling, indicate that changes in the sector have followed these broad indications.