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VII The Impact of CAP Reform on Rural Development

The impact of the CAP on regional employment: a multi-modelling cross-country approach

Konstadinos Mattas, Filippo Arfini, Peter Midmore Michael Schmitz and Yves Surry1

The research reported in this chapter refers to five European Union (EU) selected regions (Emilia Romagna, Italy; East Wales, United Kingdom; Anatoliki Makedonia and Thraki, Greece; Ostergotland, Sweden; and Kassel, Germany) to identify and measure the Common Agricultural Policy’s (CAP) effects on employment throughout regional economies. It accounts for agricultural and non-agricultural effects, and covers the diversity of EU rural regions. A framework of three different approaches was developed and then applied to these five regions in order to trace out the current and anticipated employment effects of Pillars 1 and 2 changes. The focus of this work is to consolidate the conclusions derived from the different models applied in order to deduce valuable policy generalizations and to derive conclusions which may guide policymakers in making decisions related to regional and rural development. The results demonstrate that CAP funding, particularly for Pillar 2, contributes to the maintenance of employment in the farming sector but also in the non-farming sector, thus serving as a permanent regional “stimulus” package.

In the context of an unprecedented economic crisis, the impact of the CAP on general employment levels, either increasing or sustaining employment, is attracting the interest of the public and media, since today all policy tools devised and introduced throughout the European Union target directly or indirectly employment. Further output shrinkage and the consequent increase in the proportion of the jobless will hurt the economy and may cause social discontent. Now that the effectiveness of various stimulus packages is discussed, CAP funding may play the role of a raw model of the effectiveness of such policies since it has been operated for a long time and has been reformed several times.

Thus far, CAP reforms rarely mention employment objectives as a primary goal, since the premise that the free market system is irreplaceable and never leads to faults was indisputable. Nevertheless, maintaining high employment levels in the economy, and particularly in the rural regions of the European Union, remains a highly priority and it would be of extreme interest to see how the most recent CAP reform could affect employment, not only for the agricultural sector, but for the whole rural area.

Since 1992, CAP reforms have been streamlined several times, culminating with the 2003 reform, which brought about striking changes in the fundamental structure of CAP design and philosophy. Most of the studies of CAP reform effects have focused on certain agricultural sectors and certain countries (Colman et al., 2002; Gohin, 2006; Goodman and Mishra, 2005; Hennessy et al., 2004; Ooms and Peerlings, 2005; Serra et al., 2005a; Woldehanna et al., 2000), and have offered substantial contributions on further policy improvements. Certainly, changes in employment levels are strongly associated with several other parameters (output growth, investment trends, technology adoption, human capital) studied by others (Ahearn et al., 2005:2006; Alasia et al., 2009; El-Osta et al., 2004; Woldehanna et al., 2000), but a focus solely on rural employment levels can offer insights in assessing the CAP’s effectiveness and facilitate the introduction of more effective policies. Understanding how and why the CAP’s Pillar 1 and Pillar 2 influence rural employment constitutes a challenge, as CAP measures target a wide range of objectives causing counterbalancing and complex effects.

This paper addresses the relationship between CAP reform and rural employment in a multi-modelling and cross-country context, possibly providing general European Union lessons. The paper tries to reflect in a comprehensive way a few of the findings emerging from a Sixth Framework Programme EU-funded project. To achieve this objective, five rural areas, scattered throughout Europe, were selected, and then Pillar 1 and Pillar 2 effects on the region’s economy and on employment were studied. Whereas results can be influenced by the application of different approaches, they can also offer a more comprehensive picture of the region studied. Therefore, case studies primarily based on in-depth interviews, Positive Mathematical Programming (PMP) and an Input-Output model were employed in all the regions, coupled with local observations on the regions’ outlook and performance.

The paper is organised as follows: the next section provides a general background to the methodologies applied, followed by a further section describing the major characteristics of the selected regions. In the fourth section, a cross-regional assessment is made, based on the outcome from the application of the methods, and the closing section provides recommendations for future policy modifications and revisions.

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