How the EU Single Farm Payment should be modelled: lump-sum transfers, area payments or… what else?

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How the EU Single Farm Payment should be modelled: lump-sum transfers, area payments or… what else?

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Frédéric Courleux
Hervé Guyomard
Fabrice Levert
Laurent Piet

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Abstract

The 2003 Common Agricultural Policy (CAP) reform radically changes the way the European Union (EU) supports its agricultural sector by decoupling direct payments. Production is no longer required to get the payment attached to Single Farm Payment (SFP) entitlements. However, the new scheme maintains a specific link between payments and hectares; in addition, SFP entitlements can be exchanged among farmers. These features question the way SFP entitlements should be regarded, hence modelled, i.e., as lump-sum transfers, area payments or… something else. We develop a microeconomic analytical framework which shows that the answer crucially depends on the total number of entitlements which are initially made available relative to the number of hectares, more specifically the number of cultivated hectares in a zero support regime, the number of cultivated hectares in a policy support regime trough per-hectare direct aids, and the number of cultivated or idled hectares in a policy regime where support is granted through direct aids per hectare and production is not required.

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Paper provided by INRA UMR SMART in its series Working Papers SMART - LERECO with number 200801.

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Date of creation: 2008
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Handle: RePEc:rae:wpaper:200801

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Find related papers by JEL classification:
Q18 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agricultural Policy; Food Policy
Q12 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Micro Analysis of Farm Firms, Farm Households, and Farm Input Markets

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Dewbre, Joe & Anton, Jesus & Thompson, Wyatt, 2001. " The Transfer Efficiency and Trade Effects of Direct Payments," American Journal of Agricultural Economics, American Agricultural Economics Association, vol. 83(5), pages 1204-14. [Downloadable!] (restricted)
Alexandre Gohin, 2006. "Assessing CAP Reform: Sensitivity of Modelling Decoupled Policies," Journal of Agricultural Economics, Blackwell Publishing, vol. 57(3), pages 415-440. [Downloadable!] (restricted)
Bascou, Pierre & Londero, Pierluigi & Munch, Wolfgang, 2004. "Reform and Adjustment in the European Union: The 2003 Reform of the Common Agricultural Policy and Enlargement," IAPRAP\IATRC Summer Symposium, Adjusting to Domestic and International Agricultural Reform in Industrial Countries, June 6-7, 2004, Philadelphia, PA 15769, International Agricultural Policy Reform and Adjustment Project (IAPRAP). [Downloadable!]
Binfield, Julian & Westhoff, Patrick & Young, Robert, II, 2003. "Reforming The Cap: A Partial Equilibrium Analysis Of The Mtr Proposals," 2003 Annual Meeting, August 16-22, 2003, Durban, South Africa 25856, International Association of Agricultural Economists. [Downloadable!]
Gelan, Ayele & Schwarz, Gerald, 2006. "A Policy Impact Evaluation Model For Scotland: Decoupling Single Farm Payments," MPRA Paper 1491, University Library of Munich, Germany. [Downloadable!]
Huettel, Silke & Kleinhanss, Werner & Offermann, Frank, 2005. "Impacts of Decoupling and Milk Quota Trade on the French and German Dairy Sectors," 2005 International Congress, August 23-27, 2005, Copenhagen, Denmark 24731, European Association of Agricultural Economists. [Downloadable!]
Schmid, Erwin & Sinabell, Franz & Hofreither, Markus F., 2007. "Phasing out of environmentally harmful subsidies: Consequences of the 2003 CAP reform," Ecological Economics, Elsevier, vol. 60(3), pages 596-604, January. [Downloadable!] (restricted)
Other versions:
- Markus F. Hofreither & Erwin Schmid & Franz Sinabell, 2004. "Phasing out of Environmentally Harmful Subsidies: Consequences of the 2003 CAP Reform," WIFO Working Papers 239, WIFO. [Downloadable!]
Breen, James P. & Hennessy, Thia C. & Thorne, Fiona S., 2005. "The effect of decoupling on the decision to produce: An Irish case study," Food Policy, Elsevier, vol. 30(2), pages 129-144, April. [Downloadable!] (restricted)

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