CAP Payments Research Articles

The role of CAP subsidies in all European Union member states: an analysis of technical inefficiency

The purpose of this research was to assess the impact of CAP payments made to farms included in the European FADN dataset between 2004 and 2019 and, considering this financial aid as an environmental variable, identify patterns of inefficiency in EU farming. The study has adopted a twofold quantitative approach, applying both two-stage DEA and Multidirectional Efficiency Analysis. The results reveal significant imbalances between EU member states over the period of investigation, and underline the specific effect that total CAP disbursed subsidies and second pillar CAP support have on technical inefficiency.

The capitalization of CAP subsidies into land prices in the EU

The objective of this paper is to estimate the capitalization of CAP subsidies into both rental prices and land values in the EU. We use FADN data at regional level for the period 1989–2016 and apply a dynamic panel approach (GMM estimator) to estimate the capitalization effect of coupled direct payments (CDPs), decoupled direct payments (DDPs) and rural development measures at EU level. The estimated results suggest that the short-run (long-run) capitalization rate of DDPs into land rents vary between 9.1% and 46.2% (11% and 55%) and DDPs implementation details matter. Compared to the flat-rate models, the heterogeneous DDPs models appear to have capitalization rates lower by between 34% and 37% in the short-run and between 41% and 45% in the long-run. CDPs are associated with capitalization rates of around 6% in the short-run and 7% in the long-run. No clear capitalization effect could be found for rural development measures. In contrast to rental prices, estimates for land values suggest that only DDPs may cause a capitalization rate between 28.8% and 32.1% in the short-run and between 154% and 164% in the long-run. However, estimates for land values are not robust and consistent across estimated models. Using more robust capitalization estimates for rental prices, the results indicate that only 10–12% of the overall EU CAP payments were leaked to non-farming landowners in 2016. However, there is a sizable variation in the non-farming landowners' gains across Member States, ranging from 2% to 37%.

An Impact Assessment of GHG Taxation on Emilia-Romagna Dairy Farms through an Agent-Based Model Based on PMP

The aim of this work is to assess the structural, production, environmental, and economic impact of an increasing tax on climate change gas emissions related to milk production under the current CAP payment system. The analysis is performed using an Agent-Based Model (ABM) based on Positive Mathematical Programming (PMP). The integration between ABM and PMP makes it possible to simulate farmers’ strategies considering the interaction between them, the territorial specificity, and the heterogeneity of farms in the presence of little information on production costs. It also makes it possible to add a social and cultural perspective to the economic factors. The model is calibrated using FADN data for the Emilia-Romagna region (Italy) from the year 2020. The results show that farmers belonging to different age groups make decisions based on economic profitability, but also on their social and cultural background. To maximise their utility functions, farmers can opt for more efficient agricultural management practices that may result in the exchange of production factors, especially land. The overall impact penalises less efficient farms and agricultural production with higher negative externalities.

Technical change and the Common Agricultural Policy

This paper adopts an alternative method for the analysis of the CAP’s impact on farms’ productivity based on a system of equations derived from a non-nested three-factors CES production function. With this method, we estimate the elasticity of substitution between labour, capital, and land in the EU agricultural sector, the magnitude and direction of technical change, and the impact of the CAP subsidies. The system of equations is estimated using the GMM estimator on a farm-level panel dataset covering 117,179 farms from all EU MS for the period from 2004 to 2015. Our results suggest that land, labour, and capital in EU farms are complementary production factors characterised by a slow decline or stagnation in the land-, labour-, and capital-augmented technical change. Higher levels of Pillar I and Pillar II CAP payments as percentage of total agricultural income have negative or no impact on farms’ technical change, but higher nominal amounts of Pillar I decoupled subsidies, Pillar II investment and LFA subsidies have a positive impact. Moreover, the larger the share of subsidies in total agricultural income the stronger is the negative impact of the CAP on agricultural technical change.

CAP post 2022 scenarios and income impacts – a case analysis for selected typical farms in Slovenia

Assessment based on representative farms is an established approach in the modern assessment of the effects of changes in agricultural policy. In line with previous CAP reforms, we can expect income redistribution impacts also with the implementation of the legislative and financial framework of the CAP for the next period. This paper discusses a scenario analysis using the farm model. The model is based on linear programming, which enables to address various technological challenges at farm level. We formed the scenarios for the analysis following the example of the scenarios contained in the impact assessment that the European Commission prepared for the CAP after 2020. The analysis involves selected farm types from selected sectors. The results suggest that the expected reduction in the envelope will generally lead to lower farm-level revenues from CAP direct payments. Consequently, economic performance will deteriorate, what is likely to be amplified in some sectors by the abolition of historical payments. The range of consequences at farm level will likely be considerable, especially for sectors and production types with a high share of CAP payments in the structure of total farm income. In certain sectors, however, there is even an improvement regarding the current situation.

Les choix français en matière de convergence des aides découplées de la PAC à l’horizon 2019

La PAC 2014-2020 vise a reduire les ecarts de paiements directs a l’hectare du 1er pilier dans les Etats membres en appliquant le principe de convergence au « paiement de base ». Or le paiement vert et le paiement redistributif optionnel completent le paiement de base et leurs montants dependent des choix nationaux d’application de la PAC. En utilisant un simulateur calibre sur la ferme France a l’aide des donnees du RICA, les auteurs montrent que le calibrage des seuls instruments de convergence a des effets limites, tandis que d’autres curseurs de la politique ont un impact parfois nettement plus significatif sur la convergence des paiements decouples totaux a l’hectare ou a l’exploitation. Les choix politiques francais se revelent etre le fruit d’un compromis aux objectifs ambitieux en matiere de convergence a l’hectare, sans remettre reellement en cause la hierarchie des beneficiaires des paiements decouples totaux a l’echelle de l’exploitation.

SPATIAL DIFFERENTIATION OF RAW MATERIAL PRODUCTION COSTS USED IN BIOETHANOL AND METHYL ESTER MANUFACTURING

The study examines spatial differences in the costs of raw material production intended for bioethanol and methyl ester manufacturing in Poland. Results show substantial spatial differences in production costs of rapeseed and corn. Wielkopolskie Province has the highest profitability indicator (213.2%), while Łódzkie Voivodship has the lowest indicator (134.5%). In the case of corn production, the highest profitability indicator (including EU CAP payments) is in Warmińsko-Mazurskie Province (171.9%) and the lowest in Zachodniopomorskie (109.2%). The EU CAP payments played a significant role in the case of corn production.

Employment effects of CAP payments in the UK non-farm economy

This paper investigates the effects of the CAP payments on the indirectly generated non-farm jobs in small and medium-sized enterprises (SMEs), which are central to job creation. It examines whether there are differences in the effect according to business location - rural or urban, the agricultural supply chain, and according to CAP Pillars. A microeconomic approach is employed, based on firm data from FAME dataset combined with detailed subsidies information from DEFRA. The generalised method of moments (system GMM) is used to estimate the effect of CAP payments in both static and dynamic models of employment. The results suggest positive net spillovers of CAP payments to non-farm employment. Although the magnitude of the effect is small, it is economically significant. In general, Pillar 1 has a stronger positive employment effect relative to Pillar 2. However, Pillar 2 payments have a stronger positive effect per Euro spent in rural areas and within agricultural supply chain.

The economic value of high nature value farming and the importance of the Common Agricultural Policy in sustaining income: The case study of the Natura 2000 Zarandul de Est (Romania)

This study assesses the economic value of land use changes in the Zarandul de Est (Romania) Natura 2000 site, applying the ecosystem services approach proposed by the TESSA toolkit. The aim is to provide support to decision-making in the context of high nature value farming, debating the contribution of public subsidies and agri-environmental schemes to farmers' income. Local and global agroforestry ecosystem services are compared under two different land use scenarios: 1) land abandonment followed by natural afforestation; 2) sustainable cattle grazing in semi-natural grasslands. The scenario analysis shows that an improved use of pasture land determines a relevant increase in net economic value. However, direct and rural agro-environmental payments applied to high value nature farming are necessary to provide viable financial support to farmers and achieve the economic impacts described by the ecosystem services approach. Under the 2007–2013 rules, Common Agricultural Policy payments show to be equal to 130% of the household income and able to cover the full cost of the average farm in Zarand, a figure similar to other European marginalised areas. This result suggests that public support, in the absence of a full implementation of payment for ecosystem services schemes, is necessary to limit socio-economic deprivation of European marginalised farming systems. However, without reaching smallholders (farmers holding <1ha) and commoners (farmers using common grassland) who are both currently excluded, the current state agricultural payments shows limited impacts in sustaining the resiliency of the Zarand socio-ecological system. As alternatives to CAP payments, income diversification strategies (e.g. ecotourism, incentives to re-wilding) are proposed as well as the required conditions under which they can be applied, and in what terms these strategies can sustain the strict requirements of halting biodiversity loss in Natura 2000 sites.

The Effects of Direct Payments on Technical Efficiency of Irish Beef Farms: A Stochastic Frontier Analysis

AbstractThe 2003 Mid‐Term Review of the CAP sought to refocus the EU's farm support policy to foster a more competitive and market‐orientated agricultural sector. The foundation of this reform comprised the introduction of decoupled payments to farmers, replacing the EU's previous system of supports that were directly linked to production of designated crops and livestock. This paper explores the effect of coupled payments and their subsequent replacement by decoupled support, on the technical efficiency of specialist beef farms in Ireland. Given the high reliance of beef farmers in Ireland on CAP payments, the decoupling of payments has been especially important for the sector. A stochastic production frontier is estimated using a panel dataset comprising detailed accountancy data for Irish beef farms between the years 2000 and 2013. Our results indicate that technical efficiency in the beef farming sector has been consistently poor, with an average efficiency score of only 0.53 during the period analysed. However, we found that direct income received in the form of coupled payments had a positive impact on farm efficiency, and that this positive effect was maintained after their replacement with decoupled income support.

Do CAP payments reduce farm labour migration? A panel data analysis across EU regions

This paper deals with the determinants of out-farm migration across the European Union (EU) regions focusing on the role played by CAP payments. We add to the existing literature in three main directions. First, our analysis has broad coverage (150 EU regions over the 1990–2009 period); second, we work on the entire portfolio of CAP instruments; third, we rely on modern panel data methods. Results show that standard drivers, such as the relative income and the relative labour share, are important determinants of out-farm migration. Overall, CAP payments significantly contributed to maintain job in agriculture, though the magnitude of the economic effect has been quite moderate and heterogeneous across policy instruments. Pillar I subsidies exerted an effect more than two times greater than that of Pillar II payments.

‘Fiscal Cliff’ Deal Halts SGR Cut—For Awhile

‘Fiscal Cliff’ Deal Halts SGR Cut—For Awhile

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

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.

Economic analysis of scenarios for the sustainability of extensive livestock farming in Spain under the CAP

This paper proposes a change in the conditions of cross-compliance of CAP payments. Specifically, the eligibility criterion considered is compliance with minimal requirements of long-term economic and agroenvironmental sustainability. To this end, 69 range farms were surveyed in Extremadura (SW Spain). In these farms, sustainability was studied using the MESMIS framework. MESMIS is based on the evaluation of basic attributes of sustainability (adaptability, self-reliance, equity, stability, and productivity) formed from different indicators. The original indicators are then synthesized by means of qualitative, quantitative, or mixed techniques into a single value measuring the sustainability of the system (sustainability index). Alternative scenarios were then defined in which the perception of CAP subsidies was to a greater or lesser extent linked to levels of sustainability. For each of these scenarios, the economic indicators of the farms were compared with those of the baseline (present) situation. The analysis was completed using a logistic model classification to study the relationship between the maximum levels attainable by the economic indicators in terms of the sustainability indices. The results showed that including sustainability as a condition for receiving aid under the CAP can contribute to improving the economic results of traditional extensive farms.

The economic effects of common agricultural policy on Mediterranean montado/ dehesa ecosystem

The decoupling of CAP payments leads production decisions and resources allocation to be more dependent on market prices and competitive advantages. The objective of this paper is to assess the effects of CAP trends on the montado/dehesa traditional ecosystem of Mediterranean regions in terms of farm income, land, labour and capital. A positive mathematical supply model disaggregated by the montado agro-forestry production systems of the Alentejo region in southern Portugal is developed. The results show that decoupling payments of CAP have negative economic effects on agricultural activities and resource use. Agricultural income increases with single farm payments but the foreseen increases in prices do not compensate the loss of the Agenda 2000 area payments in terms of competitiveness. These results reinforce the need to promote alternative agricultural and non-agricultural activities and policies in Mediterranean rural European areas and regions.

Farm Expansion in Lithuania after Accession to the EU: The Role of CAP Payments in Alleviating Potential Credit Constraints

The impact of the introduction of EU Single Area Payments (SAPs) on farm expansion strategy in Lithuania is investigated, utilising farm accounting and survey data. The introduction of the SAP has a positive influence on farmers' intentions to expand their area compared to a baseline scenario of the hypothetical continuation of pre-accession policy. The switch in policy has a more pronounced effect on farms that were previously credit constrained. While the SAP has been presented as a support that is decoupled from production, its introduction may have ex post coupled effects, through an income multiplier effect on credit constrained farmers.

Cap Payments after 2013 and Rural Public Goods

- The aim of this paper is to reconsider the objectives of European farm policy taking a long-term view to assessing the instruments currently in place and advancing some suggestions for the design of the future Cap due in 2013. The pro- posed guidelines for reforms include defining targeting instruments on clear objectives, guaranteeing social return for public money and replacing assistance with incentives. Measures are suggested to make EU agriculture more competitive by adapting instruments and regulations to that purpose. It is proposed to amend the current complex payment schemes, which could be simplified with a set of payments based on "contracts for services" only, including potentially three basic levels of services (basic husbandry of the countryside preserving farming landscapes; territorial services; environmentally sensitive measures). Regarding market management, it is proposed to reform but maintain public intervention to guarantee a floor price (or "safety net") restricted to exceptional circumstances. Sharing financial responsibility between the EU and the Member States according to the principle of subsidiarity would imply some co-financing of the first pillar. EconLit Classification: Q180 ,Q100

Analysis of the impact of the decoupling of the CAP (and the state) payments on the behavior of dairy farmers of Lithuania

Analysis of the impact of the decoupling of the CAP (and the state) payments on the behavior of dairy farmers of Lithuania

The impact of the common agricultural policy on the investment behavior of Polish farm households

This paper analyses farm-household strategies and investment behavior of Polish farmers with a particular focus on the perceived effects of CAP. The paper is based on a survey of Polish farmers carried out in 2006 on a sample of 63 farms. Farmers where selected in order to fit in the intersection of different farms. location (altitudes above sea level), different specialisation level and technologies. Selected farm-households were modelled with the use of multicriteria dynamic programming. Models simulate economic behaviour of farmers under different policy (decoupling and reduction of payments options) and market (reduction of prices) scenarios. Results show multifaceted expectations to ward’s the future. CAP payments are normally used on farm and concentrated on covering current costs and investment expenditure. The perspective of decoupling is expected to produce either no change or an increase of on farm investments.

Have State Caps On Malpractice Awards Increased The Supply Of Physicians?

Twenty-seven states have laws that cap payments for noneconomic damages in malpractice cases. In this study we examined whether these laws have increased the supply of physicians, using county-level data from all fifty states from 1985 to 2000. Counties in states with a cap had 2.2 percent more physicians per capita because of the cap, and rural counties in states with a cap had 3.2 percent more physicians per capita. Rural counties in states with a dollar 250,000 cap had 5.4 percent more obstetrician-gynecologists and 5.5 percent more surgical specialists per capita than did rural counties in states with a cap above dollar 250,000.