Abstract
We study the capitalisation of subsidies in the European Union (EU) regions in the years 2006-2008, the first years after the introduction of the Common Agricultural Policy (CAP) 2003 reform that decoupled subsidies from production and attached them to land. For this purpose, we use regional aggregated data and estimate the capitalisation rate upon the entire sample and, in a second stage, splitting the sample according to the implementation regime applied by the different EU Member States (MSs), following the three options introduced by the CAP regulations (historical, regional and hybrid model). We find that between 28 and 52 cents per Euro of additional subsidy capitalise into land prices in MSs that adopted the hybrid and the regional model, respectively. We find as well that subsidies do not capitalise in farmland prices in MSs that adopted the historical model.
Highlights
Farmland is by far the most valuable input in agricultural production
In 2013, the Common Agricultural Policy (CAP) reform marked an important step toward the convergence in the level of farm support across the different territories of the European Union (EU)
Payments decoupled from production and attached to land increase, the possibility of capitalisation, a side effect which should be taken into account when planning the redistribution of farm support
Summary
Farmland is by far the most valuable input in agricultural production. In the European Union (EU), land, alongside permanent crops and quotas, accounts for about 65% of total fixed assets of farms in 2012 and the figure rises to 80% when only farms specialised in field cropping are considered (European Commission - EU FADN, 2015). At the root of such heterogeneity, there is the geographical coverage of the study (the countries and regions analysed, new MSs vs old MSs), the period of the data (pre-reform vs post-reform), the methodological approach (crosssection analysis, panel data analysis, quasi-experimental approaches) and the type of agricultural support (coupled vs decoupled subsidies) Notwithstanding this heterogeneity, there is a broad consensus that payments capitalise in farmland prices. The gain of farm-level over spatially aggregated data is that with repeated observations over time it is possible to control for unobservable heterogeneity related to the quality of land, undoubtedly among the most important determinants of the farmland price.
Sign-in/Register to view highlights & summary Sign-in/Register to access full text options 
Free) 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a call
