1. The views expressed are purely those of the authors and may not in any circumstances be regarded as stating an official position of the European Commission. Pavel Ciaian is from the European Commission, DG Joint Research Centre (IPTS); d’Artis Kancs, Centre for Corporate Sustainability, Hogeschool-Universiteit Brussel; Johan Swinnen, LICOS Centre for Institutions and Economic Performance and Center for European Policy Studies (CEPS). and Liesbet Vranken of the LICOS Centre for Institutions and Economic Performance
2. A substitution elasticity measures how easy it is to substitute one input for other in the farm production function.
3. The theoretical literature on decoupled subsidies shows that fully decoupled agricultural support policies have no effect on land values if markets are competitive and transaction costs are not prohibitive. It also shows that decoupled policies may affect land values only in the presence of some market imperfections.
4. For example, in the case of the SPS, the payments have to be activated with land. In order to receive the decoupled subsidies, farmers must have a corresponding amount of land at their disposal. The total subsidies that a farm can receive are constrained by the amount of subsidies received and land used in the reference period. However, the SPS is not conditional on cultivating the land. Thus, the SPS is still connected to land in some way although it is decoupled from contemporaneous production.
5. Additionally to PFC payments, Marketing Loss Assistance (MLA) payments are decoupled in the United States. MLA was introduced as part of the “emergency assistance” provided to US agriculture in 1999. As part of an appropriations act signed into law in October 1998, USD 2.857 billion in additional payments were made to farmers to compensate them for the loss of markets for 1998 crops. Subsequent acts provided additional MLA payments of USD 5.5 billion for 1999 crops, USD 5.465 billion for 2000 crops, and USD 4.6 billion for 2001 crops. For the crops eligible for PFC payments, the MLA payments were proportional to the PFC payments made in that year, with a maximum payment per person of USD 19 888. Hence, the MLA payments can be viewed as supplementary or “top-up” PFC payments (OECD, 2005), and have sometimes been referred to as “double AMTA” payments (Goodwin and Mishra, 2002).
6. The Federal Agriculture Improvement and Reform Act of 1996 (the 1996 FAIR Act) initiated a programme of non-recourse marketing assistance loans and loan deficiency payments (LDP) for 16 crops, including corn and soybeans. The purpose of this program was to provide producers a financial tool to help farmers market their crops throughout the year. The non-recourse loans allow farmers to store production and sell it when market conditions are favourable. The crop is employed as collateral for the loan. The loans are non-recourse in that the farmer has the option of repaying the loan by delivering the crop to the Commodity Credit Corporation at loan maturity.
7. Since the 1992 MacSharry reform and the Agenda 2000 reform, the vast majority of CAP subsidies are so-called direct payments. The direct payments were partially introduced in NMS from the date of accession and then gradually increased. Direct payments from the EU budget are granted to farms in the form of area payments. The
NMS are allowed to add a restricted amount of subsidies from their own budget (so- called “top-ups”) as area payments or as coupled animals and/or crop payments.
8. Non-activated eligible land for which the SPS is not claimed represents “naked land”. The total amount of naked land tends to be smaller with the hybrid model (or regional model) than with the historical model. The explanation lies in the characteristic that the total number of entitlements in the hybrid model is equal to all eligible land at the time of SPS implementation; by contrast, in the historical model entitlements are tied to the number of hectares that generated subsidies in the reference period. As a result, the hybrid model is expected to put stronger pressure on capitalisation of the SPS into land values.