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II The Impact of the Single Payment Scheme on Land Markets and Farm Structure

European Union land markets and the Common Agricultural Policy

Pavel Ciaian, d’Artis Kancs Johan Swinnen and Liesbet Vranken1

This chapter analyses the impact of the Common Agricultural Policy (CAP) direct payments on land markets in the European Union. It starts with a theoretical model, followed by an overview of the empirical findings. Next is presented the empirical evidence of a natural experiment, i.e. the accession of several countries to the European Union where as a result of accession CAP measures have been introduced, and of the impact of the Single Payment Scheme (SPS) reform in the old EU member states (EU15). The results provide preliminary evidence and are mainly based on theoretical analysis and expert interviews. The main limitations are the scarcity of the data on land values and the short time span since the implementation of decoupled CAP subsidies in the European Union.

Economic theory, as well as empirical findings, suggests that the way in which agricultural support is provided has an influence on land markets, because payments capitalise to some degree into land values, affecting both the sales and rental price of land. This also has effects on the transfer efficiency of, for example, support and structural change.

However, the type of agricultural support is not the only factor influencing land markets. The development of land markets and the evolution of land sales and rental prices are affected by various factors, such as agricultural yields, productivity, profitability and urban and environmental pressures. The legal framework and the institutional setting also affect the investment behaviour of farmers and hence the development of rural land markets (Blancard et al., 2006; Giovarelli, 1999). In addition, transaction costs in land market imperfections, such as credit constraints, insurance market imperfections, imperfect property rights, transaction costs of farm organization and restructuring can play an important role (Ciaian and Swinnen, 2006; Cungu et al., 2008; Vranken and Swinnen, 2006; Kancs and Ciaian, 2010). Many of these conditions differ greatly between and within the EU member states.

This chapter analyses the impact of the CAP direct payments on land markets in the European Union. It starts with a theoretical model, followed by an overview of the empirical findings. Next, we present the empirical evidence of a natural experiment, being the accession of several countries to the European Union where as a result of accession CAP measures have been introduced, and of the impact of the Single Payment Scheme (SPS) reform in the old EU member states (EU15).

The results from our paper provide preliminary evidence and are mainly based on theoretical analysis and expert interviews. The main limitations of our study are the scarcity of the data on land values and the short time span since the implementation of decoupled CAP subsidies in the European Union. Hence, it is important to emphasize that the empirical evidence presented here, while suggesting some important effects, is preliminary, and the findings require further study to be confirmed with more elaborate datasets.

 
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