Disaggregated Impacts of CAP Reforms
Proceedings of an OECD Workshop
The Common Agricultural Policy (CAP) is an important policy for the European Union and accounts for about 40% of the EU budget. Ever since its inception in 1958, the CAP has been regularly reviewed and adjusted to improve its performance and adapt to changing circumstances. At a time when the post-2013 future of the CAP is being discussed and major challenges such as food security and climate change lay ahead, it is important to review the impact of past reforms and to draw lessons for the design of future policies.
While the studies in these proceedings often take account of national and international market effects of agricultural policies, they tend to focus on the impact of policies on farms and at the regional and local levels. Today, the European Union is composed of very diverse regions that are affected very differently by any given farm policy, depending on the structural characteristics of the farms’ and regions’ economies.
This report collects papers presented at the OECD Workshop on Disaggregated Impacts of CAP Reforms, held in Paris in March 2010, which focused on recent reforms. In particular, it examined the implementation of the single payment scheme since 2005 and the transfer of funds between different measures. Special attention was also paid to reforms of the sugar and dairy sectors with respect to the quota system and the restructuring of both these industries. The papers also look at the impact of the new direct payment system on land use, production and income.
The impact of decoupling and price variation on dairy farmers' strategy: overview of theoretical and real effects
The reform of the Common Agricultural Policy (CAP) in 2003 has resulted in substantial changes to the way in which dairy farmers are subsidized. Moreover, dairy farmers are also facing an unprecedented situation with major price fluctuations of agricultural raw materials. In this chapter, we discuss the cross effects on the productive strategy of French dairy farms due to the 2003 reform and to price variation. A model based on mathematical programming has been developed to determine how dairy farmers might re-evaluate their systems to identify an optimal production plan. While respecting the principle of agent rationality (maximization of profit), the model incorporates the economic risk related to the volatility of input and output prices. Thus, the model maximizes the expected utility of income while taking into account a set of constraints: regulatory, structural, zoo-technical, agronomic and environmental. This model allows a large choice in term of intensification level (input use) and productive combination. The model is applied to four types of dairy farms to show their different reactions to the reform. The simulations show how the implementation of the single payment scheme encourages farmers to increase the share of grassland. However, the increase in cereal prices is a strong incentive for farmers to intensify forage production in order to free up land for crop production. The decoupling of premiums for male bovines led farmers to reduce, all things being equal, this activity in order to increase cereal production.