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Production

Table 2.3 highlights the impact of full decoupling across the European Union on the production of the major commodities where coupling still exists. It is evident that in terms of overall production full decoupling is not projected to have a major impact when compared to the baseline scenario of continuation of the 2003 reform situation. The largest impact is a projected fall of just under 2% in rape seed production in the EU15. At the member state level, Table 2.3 highlights generally small changes in production (where larger changes are signified, this is generally from relatively small base levels of production, and therefore the changes are not large in absolute terms).

In terms of the earlier conceptual analysis, some of the changes may seem counterintuitive, and it is worth exploring these further as they highlight the complex interdependencies in the agricultural system and the difficulty of capturing these within a modelling framework. For example, in the United Kingdom it might be expected that producers would gain from full decoupling elsewhere, and that production would increase across the main sectors. However, this does not appear to be the case for barley and sheep production, where small declines are computed compared with the baseline. The (small) decline in barley production occurs in almost all countries. It is due to the lower price of barley, which arises from the lower feed cereals demand because of the smaller number of animals. Sheep meat production declines due to increased exports of lambs from the United Kingdom. CAPRI features young animal trade within the EU15, and following the general decoupling of support in continental Europe, the price increase of lambs makes exports from the United Kingdom more attractive.

For Greece, the results indicate a strong positive effect on the production of soft wheat and barley. What is not shown is a corresponding decrease in the production of durum wheat. In the baseline, the Greek implementation of Article 69 for durum wheat corresponds to a payment of about EUR 60 per hectare. When that premium is decoupled, the profitability of durum wheat relative to other cereals is drastically changed. In addition, the estimated elasticity among cereals in Greece is high compared to the elasticity of the aggregated cereals production (considering cross-price effects), and thus the change in profitability results in a change in the composition of cereals production in Greece. Similarly, Article 69 affects cereals production in Italy.

Table 2.3. Change in production under full decoupling

Percentage change from baseline scenario in 2013

Soft

wheat

Barley

Rape

seed

Beef

Pork

meat

Sheep and goat meat

Poultry

meat

EU region

European Union 27

0.01

-0.54

-1.31

-1.03

0.01

-0.78

0.08

European Union 25

0.00

-0.56

-1.33

-1.10

0.01

-0.92

0.08

European Union 15

-0.01

-0.65

-1.83

-1.21

0.02

-0.95

0.09

European Union 10

0.03

-0.07

0.20

0.15

-0.02

0.04

0.06

EU country

Belgium and Luxembourg

1.16

-0.15

10.43

-1.80

-0.02

-0.34

0.03

Denmark

1 .35

-0.32

4.02

-7.60

0.02

-2.75

0.12

Germany

0.41

-0.42

0.69

0.52

0.02

0.18

0.07

Austria

0.48

-0.25

1.64

-3.41

0.02

0.30

0.13

Netherlands

1.33

-0.76

0.65

-3.19

0.04

0.14

0.08

France

-0.76

-3.18

-9.54

-2.96

0.01

-0.91

0.23

Portugal

15.08

13.52

n/a

-1.73

0.04

-2.42

0.21

Spain

0.80

-0.22

15.94

-2.76

-0.03

-2.01

-0.03

Greece

26.27

23.08

n/a

-1.36

0.02

-0.88

0.18

Italy

-6.96

10.26

8.38

1.29

0.06

-1.53

0.09

Ireland

1.11

-0.65

12.28

1.03

0.03

-0.72

0.13

Finland

0.38

-0.21

18.05

-9.72

0.00

-21.95

0.03

Sweden

0.84

-0.19

2.91

-4.00

0.11

-0.51

0.17

United Kingdom

0.54

-1.05

2.54

1.54

0.02

-0.41

0.10

In Portugal, cereals production also increases. However, here the underlying mechanism is not Article 69, but the direct payments in the beef sector. Decoupling of suckler cow and slaughter premia results in fewer grazing animals and less need for fodder crop production. Thus, land use changes from grazing and fodder towards arable cropping.

A particularly strong negative production effect is simulated for sheep and goats in Finland, where meat production decreases by 22% and the flock numbers by 75%. This large effect is attributable to the high dependence of Finnish producers on aid. In fact, the (computed) profitability in the baseline is already negative, and removing a coupled subsidy of about EUR 31 per head has a major effect on gross value added per sheep. However, Finland also maintains an extensive national subsidy system in parallel to the CAP one. This is not included in CAPRI, and it is thus possible that taking these national subsidies into account would reduce the negative results for Finland.

Table 2.4 highlights the predicted changes in selected crop areas and livestock numbers. At the EU level, the cattle herd itself is projected to decline by around 5% for suckler cows. In contrast, little change in cereal production is forecast, and only moderate reduction in oilseed rape production. These figures suggest that the limited extent of coupling in the arable sector is having a negligible impact on the sector at the level of the

European Union as a whole, whilst in the beef sector there is an impact, albeit relatively small in terms of cattle numbers.

In terms of individual member states, there are more marked changes in terms of areas sown and livestock numbers. For example, suckler cow numbers in those countries that have maintained coupled payments are projected to fall markedly. In contrast, those countries that have fully decoupled see small increases in herd numbers as a response to the projected price rise.

Table 2.4. Change in crop areas and livestock numbers under full decoupling

Percentage change from baseline scenario in 2013

Soft

wheat

Barley

Rape

Suckler

cows

Male adult cattle

Ewes and goats

EU region

European Union 27

0.00

-0.07

-0.87

-4.98

-0.27

-0.98

European Union 25

-0.01

-0.07

-0.90

-5.05

-0.30

-1.12

European Union 15

-0.03

-0.07

-1.45

-5.10

-0.39

-1.16

European Union 10

0.03

-0.07

0.19

-2.61

0.49

-0.03

EU country

Belgium and Luxembourg

1.05

0.08

-0.26

-5.80

2.70

1.44

Denmark

1.29

-0.31

0.99

4.93

-21.80

-4.08

Germany

0.39

-0.40

0.22

5.07

0.77

0.47

Austria

0.45

-0.25

1.35

-13.41

-0.13

0.67

Netherlands

1.20

-0.74

0.00

3.93

-5.48

0.86

France

-0.82

-3.25

-5.06

-9.46

0.46

-2.02

Portugal

13.97

12.85

n/a

-24.55

1.11

-3.21

Spain

0.89

0.07

18.91

-13.05

-1.42

-4.49

Greece

27.27

22.78

n/a

5.16

-4.18

0.22

Italy

-9.86

12.63

5.81

3.00

1.57

0.08

Ireland

1.06

-0.63

0.00

3.92

0.55

1.74

Finland

0.37

-0.18

0.18

-9.00

-17.03

-75.07

Sweden

0.80

-0.12

0.04

4.65

-8.65

1.80

United Kingdom

0.50

-1.03

0.28

3.32

1.33

1.49

In order to assess the overall impact on the revenues generated by particular agricultural sectors, it is necessary to combine price and production changes (Table 2.5). At the EU level, the slight decline in cereal and oilseed production (Table 2.3) under full decoupling is not matched by price rises (Table 2.2), and therefore revenues from these crops drop slightly. However for meat production (and beef in particular) the projected price rises do seem to offset the decline in production and revenues increase, albeit very slightly. The decline in production does reduce input costs slightly, and overall gross value added (GVA) rises by around 1% in the EU27 and by slightly more in the EU15.

In terms of agricultural revenue (Table 2.5), virtually all EU countries see a small increase in GVA under the scenario of full decoupling, the only exception being Greece. In addition, in most cases, any projected fall in livestock numbers (Table 2.4) seems to be more than offset by increased prices leading to small rises in revenues from meat production.

Table 2.5. Change in sector revenues under full decoupling

Percentage change from baseline scenario in 2013

EU region

Cereals

Oilseeds

Meat

Inputs

Single

payment

premiums

GVA at producer prices plus premiums

European Union 27

-1.06

-0.95

1.35

-0.16

0.38

0.95

European Union 25

-1.17

-1.09

1.37

-0.16

0.40

0.99

European Union 15

-1.44

-1.51

1.52

-0.17

0.50

1.07

European Union 10

0.01

0.29

0.33

-0.10

-0.11

0.21

Belgium and Luxembourg

0.57

11.21

1.12

0.01

0.03

1.98

Denmark

0.17

4.69

-0.23

0.13

0.75

1.09

Germany

0.20

1.39

1.70

0.81

0.02

0.90

Austria

0.21

1.87

0.78

-0.32

-0.09

1.33

Netherlands

0.98

0.00

0.65

0.27

1.63

0.65

France

-1.34

-10.17

1.30

-0.82

0.87

1.92

Portugal

-1.27

54.90

0.98

-1.61

4.28

2.98

Spain

-2.68

7.49

0.47

-0.92

1.30

1.06

Greece

-9.06

109.03

0.90

0.06

0.04

-0.16

Italy

-5.70

3.59

2.85

0.83

-0.40

0.38

Ireland

0.19

13.43

4.40

3.07

0.00

1.71

Finland

-0.05

18.81

-1.71

-0.08

0.28

1.10

Sweden

0.29

3.57

0.61

0.12

-0.12

1.90

United Kingdom

0.36

3.18

2.84

1.56

0.12

1.27

GVA: Gross Value Added.

The impact of moving to full decoupling on consumers, producers and taxpayers is highlighted in Table 2.6. For the EU27, there is a projected increase of just under EUR 600 million in 2013 in the fully decoupled case when compared with the 2003 reforms. The table highlights that the bulk of this gain is received by the EU15 with only a small gain to the Central and Eastern European member states (EU109). This is largely to be expected given the nature of support through Europe. Consumers generally lose, due to the projected increases in prices for some commodities. However, this is more than accommodated for by increases in agricultural income, in part due to higher commodity prices but also due to the fact that producers no longer have to undertake loss-making enterprises in order to receive support payments.

It may appear surprising that the model indicates that budgetary impacts arise from the switch between partially and fully decoupled payments. This occurs because under the baseline scenario some ceilings of the coupled payments are not reached and the payments are not fully used (and hence some of the budget is saved). However, this is not the case under full decoupling when the whole (or a larger share) of the overall budget ceiling is used.

The clear picture that emerges is that the welfare gains are felt most strongly in those countries that currently have maintained coupled payments, namely, France and Spain. The United Kingdom suffers a small loss due to the fact that the gains to its agricultural sector are offset by higher food prices. The negative welfare effect for United Kingdom is due mainly to the fact that the country is a net importer of meat. Thus, the consumer loss exceeds the producer gain, and the efficiency gain shows up as a welfare gain somewhere else, i.e. where the imported meat is produced (which is not distinguished by CAPRI on the level of intra-EU trade).

Absolute change from baseline scenario in 2013 in million EUR

Table 2.6. Change in welfare measures

Total1

Consumer

(money

metric)2

Producer

(agricultural

income)

Taxpayer (FEOGA budget outlays Pillar 1)

European Union 27

596

-962

1798

150

European Union 25

588

-958

1785

150

European Union 15

579

-929

1750

156

European Union 10

9

-29

35

-6

Non-European Union

-230

-204

Belgium and Luxembourg

22.11

-29.12

55.62

0.08

Denmark

1.72

-17.85

27.8

6.47

Germany

35.16

-113.47

166.94

0.57

Austria

23.03

-18.24

41.98

-0.7

Netherlands

4.46

-41.67

65.24

12.33

France

314.3

-214.98

606.89

65.52

Portugal

57.47

-23.1

107.07

23.03

Spain

173.55

-86.55

345.84

59.66

Greece

-36.84

-24.72

-15.66

0.75

Italy

-15.14

-147.56

122.94

-15.58

Ireland

34.73

-13.92

48.91

-0.21

Finland

-0.28

-11.23

12.94

1.63

Sweden

3.25

-26.03

29.38

-0.86

United Kingdom

-38.3

-160.58

134.33

3.28

  • 1. Total does not equal sum of others as includes processing revenues and tariff revenues.
  • 2. Change in consumer welfare is measured by money metric (Money metric is a monetary value of the consumer "welfare". It is obtained from the indirect utility function. Behind it is a computation of "how much consumer budget is needed at the new prices in order to be as well off as in the baseline scenario". If the consumer needs more money (because prices are higher) in order to reach the same utility level, then that amount is taken as the "welfare loss" (Just et a/., 2004, p. 170).
 
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