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The impact of the Health Check on structural change and farm efficiency: a comparative assessment of three European agricultural regions

Filippo Arfini and Michele Donati1

An assessment of the effect of the regionalized single payment system on farm behaviour and farm economic performances is proposed for understanding the potential consequences for European Union farms. The methodology adopted for this purpose is based on positive mathematical programming (PMP) integrated with a cluster analysis technique. The PMP model is used for assessing farm responses towards changes in policy and market scenarios, while cluster analysis is implemented for mapping the characteristics of the farms before and after the regionalization introduction, thus observing the dynamics in production composition and economic results. The simulations demonstrate a differential capability of farms in reacting to new policy and market scenarios, and how regionalization contributes to reducing differences in the production and economic characteristics of the investigated farms.

The European Commission has always considered the Common Agricultural Policy (CAP) as a dynamic political tool that aims to link the agricultural sector with the evolution of the economic, financial, social and political dynamics that distinguish the member states of the European Union (EU). From this standpoint, the Health Check is much more than a simple assessment of the state of health of EU agriculture; it is a drawing up of the “new rules” that manage the relations between farms and the market, on which the future efficiency and survival of farms, and the production sectors that characterise entire EU agricultural regions, will depend.

The new Regulation (EC No. 73/2009) has the objective of reforming the current structure of the CAP and has continued the modernisation process introduced in 2003 by the Fischler reform (DG Agri, 2009; Borchard, 2008). The aim of the European Commission is to set up a legislative framework geared to preparing European agriculture for the further reform which is to be defined after the review of the European Union budget. In the meantime, the set goals are not so much of the strategic type but rather more of the tactical type. They are founded on the attempt to render European agricultural policy more “simple”, “efficient” and “effective”, and more focused on coping with the changes that most closely concern European society, and hence the Commission itself: food security, land management, viable rural areas, competitiveness in a global market, climate change, water management, the development of renewable energy sources and the preservation of biodiversity.

One of the aspects that distinguish the Regulation EC No. 73/2009 is the maintenance of the decoupled payment in order to guarantee farmers a certain level of financial security, allowing them to respond better to signals from the market, to supply the food sector, and to create a basis for providing public goods (DG Agri, 2009; Borchard, 2008). The latter action is developed by the full implementation of direct payments fully decoupled from farmers’ production decisions without influencing their market orientation. In this framework, the proposal to move from the concept of rights acquired by the farms in the past to the adoption of decoupled payments calculated on a regionalised basis can be a challenge for many farms and for the entire agriculture sector. The change proposed, which is accompanied by other measures that are maintained (cross compliance) and introduced (stronger modulation), could, in addition to bringing about a redistributive effect between regions and farms (Anania, 2008; Arfini, 2006), also lead to a redistributive effect between production sectors, affecting the competitiveness of the farm activities and of the sectors to which such farm activities belong. All this could lead to variation in the competitiveness of the farms and hence of the sectors involved.

The aim of this paper is therefore to assess the effects of this “non-reform” on the competitiveness of farms, considering the set goals as regards the role of decoupled aid, and the capacity to react to market variations in different European environments (Frascarelli, 2008; Canali, 2008).

It is therefore justifiable to wonder, in this sense, how the Health Check measures (regionalised single payment system SPS, modulation, abolition of set-aside, and milk quotas) can affect the competitiveness of European farm businesses, i.e. the capacity to adapt the organisation of the farm production, improving its productive and economic performance compared to the “historic” SPS currently in force. In this context, farms are under the framework of SPS and receive a full decoupled payment. The real innovation introduced by the reform that can potentially modify the existing equilibrium of farm holders is the regionalization of direct subsidies according to the average aid per hectare calculated for a homogeneous region: a specific European region or the whole of the Euopean Union. In theory, the modification of subsidy level will not change land allocation, but will change farmer incomes and will modify (for better or worse) farmers’ sensitivity to market price variation.

Furthermore, it is justifiable to wonder whether these measures work in different ways in the different European agricultural regions, creating comparative advantages that make certain regional supply chains more efficient than others. For this reason, the analysis considers all the farm holders belonging to the FADN sample in three European agricultural regions: Veneto (Italy), Ile-de-France (France), and Belgium. At the same time, the objective of this study is also to capture the strategy of these farm holders and to observe their path towards greater efficiency.

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