The Impact of the 2013 Reform of the Common Agricultural Policy on Land Capitalization in the European Union

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Decoupled direct payments to farmers were introduced in the European Union (EU) in the form of the Single Payment Scheme (SPS) in 2005. The 2013 Common Agriculture Policy (CAP) reform changed both the implementation of the SPS and its budget. We assess the possible effects of the 2013 CAP reform on EU land markets, particularly the capitalization of the SPS in land rental values. Our analyses suggest that the implementation details of the 2013 CAP reform will largely determine the impact of the SPS on land markets. The key considerations are the reference period for entitlement allocation, regionalization, payment differentiation, and budgetary changes. Our analysis also implies that a number of relatively minor policy changes could have substantial impacts on land markets.