Decoupling direct payments in North Macedonia – Impacts on farmer income

North Macedonia’s ambition to join the European Union requires reforms of the agricultural sector and subsidy system. One major reform is the alignment to the rules of the Common Agricultural Policy (CAP) of the European Union on direct payments, including the “decoupling” of direct payments from production quantities. The decoupling of direct payments is likely to have significant impacts on production decisions, prices and therefore on farmer income. This paper identifies four possible scenarios for North Macedonia to align the direct payment scheme to the regulations of the European Union and subsequently analyses the impact of each scenario on farmer income, using an ex ante analysis method in the form of a static microsimulation approach and the farm accountancy data network (FADN) data at individual farm level. The results show that, on average, farmer income increases when direct payments are decoupled in North Macedonia. We further test for heterogeneity and identify different effects along farm types and economic farm size – and find that some farmers would exhibit income losses as a result of the reform (i.e. specialist cattle, mixed crops and livestock farmers). The document was developed as a key deliverable in the context of TCP/MCD/3703 “Strengthening of Agriculture and Rural Development Policy Analysis and Programming”.