Decoupled Payments to EU Farmers, Production, and Trade: An Economic Analysis for Germany
After an extended process of reform the European Union has introduced direct payments to farmers which are decoupled from production decisions as a central element of its Common Agricultural Policy. They are also referred to as Single Farm Payments. In this paper we analyze the production and trade effects of this policy and its compatibility with WTO international trade rules. A survey of the literature suggests that the system of direct payments in its present form has effects which are analogous to a subsidization of agricultural land. Thus, they act to increase production and trade. Furthermore we quantify the total economic cost of production of selected commodities in the European Union and compare them to the price at which EU production is sold in foreign markets. Our analysis suggests that the costs of production in the European Union for key agricultural commodities are below international prices. It can be established that commodities for which the European Union is a net exporter are sold below cost, for extended periods of time and in substantial quantities. The EU system of decoupled payments to farmers, thus, acts to inflict economic injury to third countries. Under WTO rules, dumping can only occur when a country is an exporter. In this paper we demonstrate that on the markets included in the analysis dumping occurs on the market for wheat. The extent of injury is exemplified for Australia.
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- Beghin, John C. & Dong, Fengxia & Elobeid, Amani E. & Fabiosa, Jacinto F. & Fuller, Frank H. & Hart, Chad E. & Kovacik, Karen & Matthey, Holger & Saak, Alexander E. & Tokgoz, Simla & Chavez, Eddie C. , 2004. "FAPRI 2004 U.S. and World Agricultural Outlook," Staff Reports 32046, Food and Agricultural Policy Research Institute (FAPRI).
- Roche, M. & McQuinn, K., 2003. "Efficient allocation of land in a decoupled world," Economics, Finance and Accounting Department Working Paper Series n1190103, Department of Economics, Finance and Accounting, National University of Ireland - Maynooth.
- Ahearn, Mary Clare & Collender, Robert N. & Diao, Xinshen & Harrington, David H. & Hoppe, Robert A. & Korb, Penelope J. & Makki, Shiva S. & Morehart, Mitchell J. & Roberts, Michael J. & Roe, Terry L. , 2004. "Decoupled Payments In A Changing Policy Setting," Agricultural Economics Reports 33981, United States Department of Agriculture, Economic Research Service.
- Maurice J. Roche, 2004. "Riskier product portfolio under decoupled payments," European Review of Agricultural Economics, Foundation for the European Review of Agricultural Economics, vol. 31(2), pages 111-123, June.
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