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High Commodity Prices and the EU's Single Payment Scheme: Some Consequences of Double‐Dipping

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  • Andrew Schmitz
  • Troy G. Schmitz
  • Paul Schure

Abstract

When negotiating agricultural policies, decisions are generally based on historical net farm income figures, which are derived from the then current price and production data. In 2003, when the Single Payment Scheme (SPS) was introduced in the EU, agricultural commodity prices were “low.” As a result the SPS is very generous when viewed in light of today's “high” agricultural commodities prices: farmers are double‐dipping. We provide an empirical assessment of the implications for compensatory payments under the SPS in combination with high commodity prices for two major EU crops: wheat and barley. Yearly compensatory payments for these two crops alone exceed $10 billion. The lesson of this result for agricultural policy reform is that the payments under the SPS should have been made more flexible and tied to future (farm gate) prices, i.e., so payouts would usually vary with changing market conditions, while still being decoupled from production decisions. Au moment de négocier des politiques agricoles, les décisions sont généralement fondées sur les données historiques sur le revenu agricole net, lesquelles sont dérivées des prix et des données de production d'alors. En 2003, année où l'UE a mis en place le régime de paiement unique (RPU), les prix des produits agricoles étaient ≪faibles≫. Actuellement, le RPU est très généreux en raison des prix ≪élevés≫ des produits agricoles: les producteurs cumulent les avantages. Nous présentons une estimation empirique des répercussions sur les paiements compensatoires du RPU combinées aux prix élevés des produits de base pour deux grandes cultures de l'UE, à savoir le blé et l'orge. Pour ces deux cultures seulement, les paiements compensatoires annuels dépassent les dix milliards de dollars. La leçon est que les paiements versés dans le cadre du RPU auraient dûêtre plus souples et liés aux prix (à la ferme) futurs, de sorte que les versements varieraient généralement en fonction des conditions changeantes du marché tout en demeurant indépendants de la production.

Suggested Citation

  • Andrew Schmitz & Troy G. Schmitz & Paul Schure, 2008. "High Commodity Prices and the EU's Single Payment Scheme: Some Consequences of Double‐Dipping," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 56(4), pages 523-531, December.
  • Handle: RePEc:bla:canjag:v:56:y:2008:i:4:p:523-531
    DOI: 10.1111/j.1744-7976.2008.00145.x
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    References listed on IDEAS

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    1. Powell, Stephen J. & Schmitz, Andrew, 2005. "The Cotton and Sugar Subsidies Decisions: WTO's Dispute Settlement System Rebalances the Agreement on Agriculture," Technical Papers 15640, University of Florida, International Agricultural Trade and Policy Center.
    2. Troy G. Schmitz & Christopher R. Giese & Clifford J. Shultz II, 2008. "Welfare Implications of EU Enlargement under the CAP," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 56(4), pages 555-562, December.
    3. Koen Dillen & Matty Demont & Eric Tollens, 2008. "European Sugar Policy Reform and Agricultural Innovation," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 56(4), pages 533-553, December.
    4. Robert Ackrill & Adrian Kay & Wyn Morgan, 2008. "The Common Agricultural Policy and Its Reform: The Problem of Reconciling Budget and Trade Concerns," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 56(4), pages 393-411, December.
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