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The Abrogation Of Set Aside And The Increase Of Cereal Prices: Can They Revert The Decline Of Cereal Production Generated By Decoupling?

Listed author(s):
  • Severini, Simone
  • Valle, Stefano
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    The decoupling of direct payments, caused by the introduction of the Single Payment Scheme (SPS), has generated an incentive for farmers to decrease the production of cereals, oilseeds and protein crops (COP) and (because of the reform of sugar CMO) sugar beet. In some cases, this has also provided a strong enough incentive for farmers to let some of the available land uncultivated in the years immediately following the introduction of the SPS. However, in the last few years, cereal prices have sharply increased under the pressure of a growing world demand. Under this situation, the EU Commission has abrogated the set aside requirement allowing the cultivation on idle land. In this way the Commission intends to allow EU farmers to take advantage of the new market conditions and to stabilise cereal market. This paper aims at assessing how much the abrogation of set aside requirement can be effective in increasing cereal production. This is not a trivial question given that in some farms the introduction of SPS has also resulted in some of the land previously cultivated (i.e. not set aside) to be left uncultivated. Under this circumstance, the set aside constraint could be not binding and, therefore, its abrogation may not result in an increase of production. The second aim of the paper is to evaluate to what extent increases of cereal prices could foster cereal production and reduce the amount of uncultivated land. The analysis has been carried out on a sample of FADN farms of three study areas located in two regions of Italy (Emilia Romagna and Veneto) using Positive Mathematical Programming (PMP) models. The analysis has shown that the decoupling of direct payments generates a not negligible decrease of COP production and pushes some farmers to let a limited amount of land uncultivated. Therefore, the abrogation of set aside requirement per-se increases cereal production, but this increase is not in all cases very relevant. The increases of cereal prices could be more effective than the abrogation of set aside requirement in increasing cereal production. The combination of both considered factors is expected to revert the decline of cereal production experienced in the considered farms after the introduction of the SPS even if the magnitude of this effect is strongly affected by the level of cereal prices.

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    Paper provided by European Association of Agricultural Economists in its series 109th Seminar, November 20-21, 2008, Viterbo, Italy with number 44782.

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    Date of creation: 12 Nov 2008
    Handle: RePEc:ags:eaa109:44782
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    1. Jeroen Buysse & Bruno Fernagut & Olivier Harmignie & Bruno Henry de Frahan & Ludwig Lauwers & Philippe Polomé & Guido Van Huylenbroeck & Jef Van Meensel, 2007. "Farm-based modelling of the EU sugar reform: impact on Belgian sugar beet suppliers," European Review of Agricultural Economics, Foundation for the European Review of Agricultural Economics, vol. 34(1), pages 21-52, March.
    2. Golan, Amos & Judge, George G. & Miller, Douglas, 1996. "Maximum Entropy Econometrics," Staff General Research Papers Archive 1488, Iowa State University, Department of Economics.
    3. Quirino Paris & Richard E. Howitt, 1998. "An Analysis of Ill-Posed Production Problems Using Maximum Entropy," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 80(1), pages 124-138.
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