Home Economics Disaggregated impacts of CAP reforms : proceedings of an OECD workshop.
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
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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