Efficient allocation of land in a decoupled world

In this paper we investigate whether specialist producers of Irish cereals were allocating land efficiently in a mean-variance sense during the 1993-2002 time period. We then expand the model to examine the potential implications on the land allocation decision of the 2002 EU Commission’s proposed mid-term reform of the Common Agricultural Policy. One-year ahead rolling forecasts of conditional moments of Irish cereal prices are generated using a multivariate autoregressive conditional heteroscedastic model. These forecasts are used to construct expected efficient frontiers for each year between 1993 and 2002. Our findings indicate that in every year specialist producers of Irish cereals were allocating land efficiently ex ante. We also show that the proposed introduction of decoupled payments will change the efficient frontier facing Irish cereal producers and probably induce producers to allocate more land to the higher returning yet relatively riskier wheat crop.