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Environmental consequences in Austria of the 2003 CAP reform

Franz Sinabell and Erwin Schmid1

A core element of the European Union 2003 Common Agricultural Policy (CAP) reform was to decouple income support from production. Such subsidies have been classified as environmentally harmful by the OECD. This chapter reports ex ante estimates of the environmental consequences of this policy reform and compares observed outcomes of agri-environmental indicators. The findings show that the CAP reform of 2003 actually brought about environmental improvements which the previous reform (Agenda 2000) had promised but did not deliver.

Production-linked subsidies have been the predominant transfer vehicle in agriculture in many countries over several decades. Such subsidies are classified by OECD as environmentally harmful (Portugal, 2002; Steenblik, 2002), and some observers maintain that on a global scale agriculture is the primary threat to the environment (Clay, 2004). Hence, attempts to quantify the impact of subsidies granted to this sector and the magnitude of their consequences for the environment are of substantial interest. The reform of the Common Agricultural Policy (CAP) of the European Union in 2003 provides an interesting opportunity to analyze the consequences of farm subsidies on the natural environment, because European Union (EU) agriculture is substantially subsidised and reliable agri-environmental indicators are available (OECD, 2001, 2002).

This chapter reports the results of ex ante simulations of the environmental consequences of the 2003 CAP reform, and compares observed outcomes of agrienvironmental indicators before and after the reform. The model used for the analysis was designed to quantify causal relationships between subsidies, agricultural production and environmental indicators. If both observations and model results show an improvement in the environmental situation, it is a strong indication that the change was actually brought about by the policy reform and is not just a lucky coincidence.

We use a model that incorporates the complex set of regulations in both EU farm policy and a further layer of national policies affecting production and management decisions in many ways. The model used for this analysis is disaggregated at regional, commodity and policy levels to capture a wide range of production responses to policy changes. In addition, agri-environmental indicators have been incorporated, and thus the model is capable of measuring pressures and driving forces in a consistent framework.

An analysis of the Agenda 2000 reform of the CAP (implemented in 1999) concluded that it had significant economic costs but almost no effects on the environment — neither positive nor negative (Wier et al., 2002). For the case of Austria, we analyze whether this conclusion holds for the 2003 CAP reform as well. We describe core elements of the CAP by focusing on major subsidy programmes and a selection of environmental indicators that are used in our model analysis. The agricultural sector model employed and the details of its implementation are then presented, followed by the model results and observations of agri-environmental indicators. We conclude with a summary of the results and further options to improve the environmental performance of the CAP.

 
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