Home Economics Disaggregated impacts of CAP reforms : proceedings of an OECD workshop.
Impact of SPS implementation
Our theoretical framework and the empirical evidence in the literature suggest that the impact of the SPS on land markets depends on several factors, including the SPS model applied and specific implementation features, market imperfections, transaction costs, market structure and other policies.
On average, the impact on land markets of the switch to the SPS appears to have been weak, and it has not led to lower capitalisation than under coupled policies, although there has been variation among the EU study countries and regions. Preliminary evidence presented in this paper indicates that on average the impact has been limited. We do not observe major declines in land prices with the shift to decoupled policies, which implies that there are no significant reductions in the capitalisation of support.
The introduction of the SPS appears to have had a larger impact on land rents than on farmland sales prices. The net effect on land values also depends on the rate of SPS capitalisation into land values and on the relative significance of the SPS compared with other drivers of land values. The empirical evidence from this paper implies that the relative weight of the SPS in determining farmland prices against that of other drivers of land values is higher for rents than for sales prices.
Preliminary evidence reveals that the historical model leads to lower capitalisation of the SPS into land values than the regional or hybrid models. In countries with the hybrid model, capitalisation appears to be driven by the low amount of naked land. In countries with the historical model, the impact of the SPS appears to be substantially weaker. Where SPS land capitalisation occurs, the most influential factor tends to be structural change combined with constrained entitlement trading (most notably in Belgium). In countries such as Greece, there is little activity on the land market, and hence there is little capitalisation of the SPS. In Ireland, the possibility to consolidate entitlements has reduced the pressure of the SPS on land markets, and SPS land capitalisation appears to be minimal.
We also find that, instead of reducing capitalisation, introduction of the SPS appears to have increased capitalisation in the least productive regions. The SPS seems to have put a floor on land values in less productive regions (e.g. in Sweden and parts of the United Kingdom). The clearest evidence of the influence of the SPS on land values is higher land values for less fertile land (e.g. grassland). This finding could also be caused by the redistribution that came with the hybrid model.
In countries with regulated rental prices, implementation of the SPS seems mainly to affect unofficial markets. In these member states, there is little effect on official prices (since these are regulated), but where regulations lead to the existence of unofficial markets for agricultural land, the SPS tends to increase both rental prices (e.g. Belgium) and volumes on the unofficial market (e.g. Belgium and the Netherlands).
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