The impact of decoupling and modulation in the European Union: a sectoral and farm level assessment

This chapter presents the main findings from the IDEMA project on the impact of the single payment scheme on production, prices, trade flows, farm income and structural change at the European Union and regional levels. Three complementary evaluation approaches were used: surveys of farmers’ intentions, sector modelling and agent-based models of regional structural change. The findings provide no strong evidence that farmers intend to change their strategic decision to exit agriculture. Instead, structural change is shown to slow down when payments are more decoupled because minimal land management becomes an additional source of income. The reform has increased the market orientation of EU farmers and has reduced trade distortions. The single payment scheme is shown to increase farm incomes, but also land rental prices in most regions. Capitalization of payments into land values over time will, however, erode the ability of the reform to support incomes in the long run as incumbent farmers retire or otherwise leave the sector. The impact of the reform would have been very different if there had been no link between the decoupled payment and land.