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The CAP reform: a stable income

The first item discussed concerns the impact of the CAP reform on the economic performance of the farms studied. In France, the single payment is granted on the basis of the amount of direct aid allocated, during the 2000-02 period, according to the production factors: land, animals and quota (the historical model). It remains closely correlated to the farm’s size. Moreover, France also chooses to not fully decouple some subsidies (the decoupling is partial): the crop premium is partially decoupled (75%) as well as the slaughter premium (60%) and other animal premiums (suckler cow, ewe); but direct subsidies based on the milk quota, special premiums for bovine male (SPBM) and set- aside premiums are fully decoupled (Table 6.3).

In the S1 scenario, the implementation of the CAP reform has little influence on economic performance (Table 6.4). The income is stable for two reasons. The 5% modulation (budgetary transfer of support from Pillar 1 to Pillar 2 for rural development) of direct payments decreases the total output. This is partly offset by a decrease of variable costs (grass-based production is cheaper than silage-based production). Even if income is stable, the weight of the payment in income rises strongly with the allocation of the direct milk aid as compensation for the decrease of institutional prices. The CAP reform increases the dependence of farmers on direct public support as showed by Chatellier (2006). There is also a great disparity between intensive and extensive systems: farms with cereal or fattening activities receive the largest amount of subsidies.

Table 6.4. Implementation of the CAP reform taking into account price increases

Grass-based Farm

Semi-intensive Farm

Milk +cereals Farm

Milk +Young bull Farm

Average per farm

Baseline

S1

S2

Baseline

S1

S2

Baseline

S1

S2

Baseline

S1

S2

Income

EUR

54 100

53 600

61 600

55 700

55100

62 600

120 600

116 700

150 500

120 400

119 300

133 200

Crop area

Grain prices

EUR/t

120

120

180

120

120

180

120

120

180

120

120

180

Cereals

ha

10.7

6.3

13.0

16.4

12.9

16.2

91.0

90.7

85.9

18.0

60.0

59.1

Maize silage

ha

5.3

3.2

6.5

14.7

10.0

14.4

20.0

19.3

24.4

45.4

22.4

21.3

Grassland

ha

62.0

68.5

58.5

15.5

23.6

16.0

13.7

14.7

14.4

29.6

10.0

10.6

Set-aside

ha

0.0

0.0

0.0

3.4

3.4

3.4

12.3

12.3

12.3

7.0

7.6

9.0

Premium for grassland

yes

yes

yes

no

no

no

no

no

No

no

no

no

Animal activity

Dairy cows

Nber

57

57

56

34

34

34

54

56

54

50

46

45

Young bull

Nber

77

0

0

Milk yield

l/year

5 290

5 250

5 330

8 500

8 500

8 500

8 500

8 500

8 500

8 920

9 000

9 000

Milk yield

l/ha of forage area

4 440

4 270

4 600

9 630

8 650

9 580

13 670

13 580

11 900

5 950

12 670

12 590

Concentrates

Kg/year

290

230

240

1 100

1 080

1 100

2 020

2 020

1 250

1 130

1 330

1 320

Nitrogen application

Kg/ha

132

132

130

112

112

112

64

64

64

147

74

72

Working time

Hr/AWU/year

2 020

2 000

2010

1 570

1 520

1 570

1 900

1 900

1 910

2 060

1 310

1 280

Economic results

Total output

EUR

145 200

142 000

158 200

135 500

130 600

147 800

303 100

298 500

340 100

294 200

247 900

285 300

Milk output

EUR

94 000

84100

88 300

89 900

79 800

84100

142 600

126 500

133 400

124 000

110 000

116 000

Meat output

EUR

32 500

32 500

34 900

15 700

15 700

17 300

23 200

23 200

25 600

102 300

29 400

21 000

Crop output

EUR

6 800

4 000

13 500

15 300

12100

22 700

88 200

88 100

120 300

16 800

61 300

92 800

Total subsidies

EUR

11 900

21 300

21 400

14 600

23100

23 700

49 100

60 800

60 800

51 100

62 200

65 500

Variable costs

EUR

32 000

29 500

36 400

33 700

29 800

38100

86 500

86 200

91 000

84 200

57 400

63100

Fixed costs

EUR

59 100

58 900

60100

46 100

45 700

47100

96 000

95 700

98 600

89 600

86 300

88 900

Marginal yields

Additional milk quota

EUR/t

347

299

269

231

183

163

229

185

158

290

208

174

Additional milk yield

EUR/I

n.c. 1

n.c.

n.c.

268

267

407

589

635

900

n.c.

242

569

Additional area

EUR/ha

177

159

403

745

459

859

871

604

1040

722

356

864

n.c.: not a constraint.

The decoupling causes a significant decline in the shadow value of an additional litre of milk quota (from -8% to -20% depending on the type of farming) and an additional hectare of land available (from -20% to -50%). Regarding milk marginal yield, the work of Bouamra-Mechemache et al. (2008) and Moro et al. (2005) within the framework of the European Dairy Industry Model project confirms these results. The marginal costs (per tonne of milk) estimated by their computable general equilibrium model range between EUR 141/tonne to EUR 163/tonne (50% of the price of milk) for the French dairy farm after the CAP reform. Nevertheless, these marginal yields remain positive and, consequently, expanding the farm is economically beneficial. It is reassuring that the results of our farm-level model are close to those of the general equilibrium model; this suggests that the calibration of the model is precise.

In the S2 scenario, we simulate the reform with the rise of prices which occurred in 2007 and 2008 (Table 6.3). This increase in agricultural production prices improves the income for all the types of farming studied, from 7% to 36% (Table 6.4). This situation, very economically beneficial for the farms, helps to reduce the share of direct payments in income.

 
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