Change in Farm Production Structure Within Different CAP Schemes – an LP Modelling Approach

After accession to European Union in 2004 direct payments became very important income source also for farmers in Slovenia. But agricultural policy in place at accession changed significantly in year 2007 as result of CAP reform implementation. The objective of this study was to evaluate decision making impacts of direct payments scheme implemented with the reform: regional or more likely hybrid scheme. The change in farm production structure was simulated with model, applying gross margin maximisation, based on static linear programming approach. The model has been developed in a spreadsheet framework in MS Excel platform. A hypothetical farm has been chosen to analyse different scenarios and specializations. Focus of the analysis was on cattle sector, since it is expected that decoupling is going to have significant influence on its optimal production structure. The reason is high level of direct payments that could in pre-reform scheme rise up to 70 % of total gross margin. Model results confirm that the reform should have unfavourable impacts on cattle farms with intensive production practice. The results show that hybrid scheme has minor negative impacts in all cattle specializations, while regional scheme would be better option for sheep specialized farm. Analysis has also shown growing importance of CAP pillar II payments, among them particularly agri-environmental measures. In all three schemes budgetary payments enable farmers to improve financial results and in both reform schemes they alleviate economic impacts of the CAP reform.