Redistribution and the Abolishment of Historical Entitlements in the CAP Strategic Plans: The Case of Greece

A key issue in CAP strategic planning in Greece is the treatment of historical entitlements. An unequal level of payments per hectare is difficult to justify in terms of the CAP’s rationale, and so the abolishment of these entitlements seems to be the most reasonable option. However, for historical reasons, this abolishment may result in a transfer of payments from smaller to larger farms and between different agricultural sub-sectors which could in turn lead to negative effects on the incomes of small farms and lead to farmers leaving the sector. We simulate the change to a flat rate payment in order to quantify these effects, then explore the possibility of employing the new obligatory redistribution measure, termed complementary income support, to mitigate any negative effects. We conclude that redistribution is, indeed, a powerful tool for fine-tuning decoupled payments if historical entitlements are to be abolished.

The capitalisation of decoupled payments in farmland rents among EU regions

We study the capitalisation of subsidies in the European Union (EU) regions in the years 2006-2008, the first years after the introduction of the Common Agricultural Policy (CAP) 2003 reform that decoupled subsidies from production and attached them to land. For this purpose, we use regional aggregated data and estimate the capitalisation rate upon the entire sample and, in a second stage, splitting the sample according to the implementation regime applied by the different EU Member States (MSs), following the three options introduced by the CAP regulations (historical, regional and hybrid model). We find that between 28 and 52 cents per Euro of additional subsidy capitalise into land prices in MSs that adopted the hybrid and the regional model, respectively. We find as well that subsidies do not capitalise in farmland prices in MSs that adopted the historical model.

The Capitalization of Agricultural Subsidies into Land Prices

We review the recent theoretical and empirical literature on the capitalization of agricultural subsidies into land prices. The theoretical literature predicts that agricultural subsidies are capitalized into land prices when land supply is inelastic and land markets function well. The share of capitalized subsidies significantly depends on the implementation of farm subsidies, local land-market institutions, rural market imperfections, and spatial effects. Most empirical studies have shown that agricultural subsidies are only partially capitalized into land prices, estimating that decoupled payments and land-based subsidies exhibit higher capitalization than coupled payments and nonland-based subsidies, respectively. However, estimated capitalization rates vary widely across studies largely because of data availability and identification challenges. Expected final online publication date for the Annual Review of Resource Economics, Volume 13 is October 2021. Please see http://www.annualreviews.org/page/journal/pubdates for revised estimates.

European Union Agricultural Support ‘Coupling’ in Simulation Modelling: Measuring the Sustainability Impacts

Over the last twenty years, the Common Agricultural Policy of the European Union has evolved into a multifunctional policy instrument. As part of this transformation, most farmer receipts are paid independently of production, granting this class of payment production-neutral or ‘fully decoupled’ status. In prospective agricultural market studies, simulation models routinely represent these payments as decoupled, despite academic evidence to the contrary that posits a number of ‘coupling-channels’. To explore the ramifications of differing degrees of coupling on the three pillars of sustainability, a natural-resources focused simulation model is employed. Comparing with a ‘standard’ decoupled baseline to 2030, higher coupling increases global agricultural employment and reduces production intensity on European Union agricultural land and agricultural emissions. Higher coupling also diminishes the Common Agricultural Policy’s capacity as a safety-net for European Union food-security and agricultural employment, whilst there is tentative evidence of increasing emissions ‘leakage’. At the very least, if the non-distorting status of decoupled payments is mis-specified, this has direct implications for the design of greener policy initiatives under the auspices of the Green Deal that promote sustainable fairer trade. As a result, further empirical research on the production distorting effects of the European Union’s decoupled payments is needed.

A meta-analysis of the capitalisation of CAP direct payments into land prices

The impact of the European Union common agricultural policy direct payments on land prices has received substantial attention in recent years, leading to heterogeneous evidence of capitalisation for both coupled and decoupled payments. In this paper, we provide an extensive review of the empirical works addressing this issue econometrically and compare their results through a Bayesian meta-regression model, focussing on the impact of decoupling and its implementation schemes. We find that the introduction of decoupled payments increased the capitalisation rate, although the extent of this increment hinges on the implementation scheme adopted by the member state.

A Technical Efficiency Analysis of Financial Subsidies Allocated by the Cap in Romanian Farms Using Stochastic Frontier Analysis

The Common Agricultural Policy (CAP) has undergone radical changes as a consequence of international agreements. Through a parametric approach based on Stochastic Frontier Analysis, it has been possible to estimate the impact of financial subsidies allocated under the Common Agricultural Policy for the period from 2007 to 2017 in the framework of the first and second pillars to Romanian farms that are part of the FADN dataset. The findings have revealed the positive effect of financial subsidies allocated to disadvantaged rural areas in increasing technical efficiency, and a modest impact of decoupled payments disbursed under the first pillar of the CAP on the Romanian farms investigated.

The evolution of Romanian agritourism and the role of European Union subsidies in rural areas

Following the collapse of the communist regime in Romania, there has been an intense growth in the number of farms providing holiday accommodation, which has gone to answer the tourism flows from other European countries that have increased significantly, particularly since 2009. The core purpose of this study was to estimate, through a quantitative approach, the main relationships between decoupled payments and other financial subsidies allocated by the European Union in the framework of the Common Agricultural Policy (CAP) and the growth of Romanian agritourism. The findings reveal that, over the 2007–2016 period, decoupled payments more than financial subsidies allocated under the second pillar of the CAP have acted to encourage the growth of agritourism in the Romanian countryside. This has corroborated the crucial role that direct payments and other financial subsidies have played in stimulating diversification in Romanian farms and, at the same time, reducing the levels of permanent emigration from rural villages as well.

Estimating the Impact of Decoupled Payments on Farm Production in Northern Ireland: An Instrumental Variable Fixed Effect Approach

The production stimulating impact of agricultural subsidies has been a well-debated topic in agricultural policy analysis for some decades. In light of the EU reform of the Common Agricultural Policy (CAP) in year 2005 in which agricultural subsidies were decoupled from current production decisions and the modification to this payment in 2015, this study investigates the impact of decoupled payments under these two reforms on livestock production in Northern Ireland. The study uses a farm-level panel dataset covering 2008–2016 period and employs an instrumental variable fixed effect model to control for relevant sources of endogeneity bias. According to the empirical results, the production impacts of decoupled payments were positive and significant but with differential impacts across livestock production sectors, suggesting that decoupled payments still maintain a significant effect on agricultural production and provide an indication of the supply response to changes in decoupled payments.