Main assumptions retained in the simulation

Our estimates are designed to evaluate the economic impact that changes to the method for allocating direct payments resulting from the decrees passed on 23 February 2009 will have on farms. This impact is measured against the reference situation (historical model), with all other factors being held constant, i.e. no allowance is made for farmers adapting their production to the new situation or for productivity gains, which vary across the categories of farming operations (Butault, 2006). Similarly, movements in output prices (Gohin and Latruffe, 2006) and/or factors of production are not taken into consideration, regardless of whether they are caused by the decisions or are exogenous.

The impact of measures identified by the CAP Health Check is evaluated in euros per farm and/or as a percentage of total direct payments (Table 10.3) and/or income.⁵ In recognition of the wide fluctuations in the prices of agricultural produce in recent years (especially cereals and dairy products), the impact of the budgetary redistribution is reported as a five-year average (period 2003-07, in constant 2007 EUR). It is important that this impact, expressed as a percentage of revenues, be discussed from the standpoint of final income. In the same vein, depending on the type of farm, the sometimes extensive use of hired farm labour may have the effect of creating a significant gap between farm income and family income (Table 10.4).

First, the simulation evaluates the economic impact on each farm of the disbursements under Article 63 (EUR 760 million, of which EUR 630 million are in direct payments for cereals, oilseed and protein crops and EUR 130 million for livestock premiums⁶) and under Article 68 (estimated at EUR 390 million) and the increase in the modulation rate (estimated at EUR 310 million nationwide). Evaluation of the budgetary appropriation posed no particular challenges, since the item “Subsidies” in FADN makes it easy to identify the amount of the single payment and of the coupled aid that will be decoupled in 2010.

Second, for each of the 13 expenditure items, the simulation assigns to every farm values that sum to EUR 1.26 billion (of which EUR 36 million are from the domestic contribution). The assumptions used to apportion these funds should by no means be construed as a prediction of the decisions that will finally be forthcoming from the task forces established by the Minister of Agriculture, whose mandate is to provide details regarding the technical application of the mechanisms decided upon.

Table 10.3. Level of direct payments per farm EUR, 2007

N/A: Not representative. Source: AGRESTE - RICA France 2007 / INRA SAE2 Nantes calculations.

Table 10.4. Current revenues before income taxes per family farm job EUR, average over five years

• • As to the EUR 700 million of direct payments allocated to grasslands, our choices for the simulations are particularly pertinent because this is a key element of the reallocation of funding. In keeping with statements made in a speech by the Minister of Agriculture, the areas eligible for this premium include permanent pasture and temporary pasture deemed “productive”. However, not all productive grassland areas are treated equally under this new aid. Specifically, areas are accounted for differently depending on the farm’s stocking density (expressed here in terms of head of grazing livestock per hectare of primary forage area, where roadways are included in forage areas) and the farm’s total area of pasture (up to 50 hectares per farm). Also, the pastures of farms with a stocking density below 0.5 are automatically disqualified from receiving the aid. In operations with a stocking density between 0.5 and 0.8, these areas are counted, but are weighted with a coefficient that increases linearly from 0.625 when the density is 0.5 to 1 when it reaches 0.8. On farms in which the stocking level exceeds 0.8, pasture is fully counted. The maximum level of aid applies to the first 50 hectares, with the remaining pasture counted at 50%.
• • As to the EUR 30 million assigned to fodder, this support takes the shape of per-hectare payment for all fodder crops (except temporary pasture) - principally fodder maize, but also fodder beets, fodder cabbage/kale, etc. The amount of payment per hectare (approximately EUR 20) is uniform across France.
• • As to the EUR 30 million assigned to potato and vegetable crops, the aid allocation to farms is proportional to the area planted.
• • As to the EUR 135 million assigned to the sheep and goat sector, the envelope was first split into two parts in proportion to the sizes of the suckler and dairy ewe and goat populations; only goats in mountain and high mountain zones and in Corsica were included in this calculation. The envelope assigned to sheep (estimated at EUR 131.6 million) was then distributed as (coupled) aid per head of ewes; and similarly for goats (EUR 3.4 million). In addition, the simulation accounts for an increase in the amount of the single farm payment for sheep farms that will take effect in 2009 (EUR 25 million).
• • As to the EUR 45 million allocated to dairy operations in the high mountain, mountain, and Piedmont zones, aid is distributed on up to a maximum of 100 000 kg of milk per farm, with consideration given to the transparency of the GAEC (typical French association of farmers). This threshold was established to reflect the ceiling on payments of this new aid to each farm.
• • As to the EUR 8 million earmarked for the production of durum wheat in traditional zones, the amount of aid is determined per hectare at a rate that is uniform across the farms in these zones.
• • As to the EUR 4.7 million earmarked for suckling calves, the amount of aid reflects the number of head on a uniform basis. To better target this very specific population, only regions in the great basin in south-western France (i.e. the traditional zones of production) are eligible for this new aid.

• • As to the EUR 42 million allocated to supplement the compensatory allowance for permanent natural handicaps, the simulation assumes that only the first 25 hectares are eligible.
• • As to the EUR 40 million assigned to the protein crop sector, we extrapolate that this support will be distributed in the form of a per-hectare aid to farms that had land under these crops in 2007. This choice was made necessary by the fact that it is difficult to identify farms that will immediately switch to growing these crops following the introduction of earmarked aid.
• • As to the EUR 57 million allocated to promoting organic agriculture, we opted for a lump-sum and uniform premium. This premium is available to farms currently involved in organic farming or converting to it. An alternative to this option, payment of a per hectare premium, would tend to skew production toward larger farms at the expense of those operating on a smaller scale (such as organic vegetable farming).
• • As to the EUR 32 million allotted to “new challenges”, support is distributed in the form of supplemental aid classified as “other direct agri-environmental aid” under FADN (excluding the agri-environmental grass premium). As in the case of protein crops, it is difficult to predict what farms will take this route.
• • As to the EUR 100 million allocated to supporting crop insurance, the funds are allocated on the basis of the value of plant production. Here again, it has proved impossible to speculate on whether farmers will opt for these insurance contracts immediately. They will incur additional expenses if they sign on.
• • As to the EUR 40 million allotted to the health fund, the support is allocated on the basis of the value of animal production.

The amount of the budgetary appropriations exceeds the total 13 expenditure items by EUR 223 million. The excess is used to fund prior commitments, in particular the Community’s contribution to the agri-environmental grass premium.