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Farm income and land rental prices

The impact of decoupling on farm income is particularly relevant, because both the former direct payments and the decoupled SPS have the purpose of providing farmers with a stable income. AgriPoliS results show that average farm income increases due to decoupling in the REFORM scenario compared to AGENDA. This is shown in Figure 1.6 using average profit per hectare as an indicator of farm income: this is higher in all regions in 2013 when direct payments are decoupled from production. Income increases because decoupling gives farmers more freedom to choose whether or what to produce, and because product prices increase as a result of lower total EU production volumes (these price changes were taken from ESIM and fed into AgriPoliS).

Figure 1.6. Average profit in 2013 under alternative scenarios

Source: Sahrbacher et al. (2007).

As might be expected, decoupling does not overcome the problem of capitalisation of payments into land values. Figure 1.7a shows that decoupling leads to increased arable land rental prices in Hohenlohe, Jonkoping and Vasterbotten. Grassland rental prices increase significantly in regions that had considerable cattle payments prior to decoupling, since such payments were redistributed to agricultural land as part of the reform (Figure 1.7). Rental prices in Brittany do not increase, due to a regulated land market (Latruffe and Le Mouel, 2006).

Breaking the link between the SPS and land in the BOND scenario implies that the decoupled payment should no longer capitalise in land rental prices, as it is not necessary to have land to collect the payment. AgriPoliS results for this scenario show that land rental prices fall significantly in all regions, except Brittany, compared to AGENDA, Figure 1.7. The lower land rental prices combined with increased efficiency due to structural change compensate for payments leaving the sector with exiting farmers. The resulting effect is higher average profit per hectare in all regions compared to AGENDA, as illustrated in Figure 1.6. In several regions, i.e. Hohenlohe, Saxony, Southeast and Jonkoping, there is a significant increase in profits even compared to the REFORM, which implies improved competitiveness.

Figure 1.7. Average arable and grassland rental prices in 2013

  • ? AGENDA DREFORM ? BOND -2004
  • (a) Arable land

EUR/ha 600 500 400 300 200 100 0

Brittany Hohenlohe Saxony Southeast Jonkoping Vasterbotten

Brittany Hohenlohe Saxony Southeast Jonkoping Vasterbotten

Source: Sahrbacher et al. (2007).

 
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