Impact of partial decoupling on prices, production and farm revenues in the EU

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1 Impact of partial decoupling on prices, production and farm revenues in the EU Alan Renwick, Cesar Revoredo-Giha, Andrew Barnes, Steven Thomson (SAC) Torbjorn Jansson (SLU) Gerald Schwarz (vti) Presentation to OECD workshop on CAP reform Paris, March 10 th -11 th

2 Background Concern over the impact of full-decoupling led to the partial decoupling compromise Aim is to assess the impact of this compromise - commissioned by Defra and fed into CAP health-check discussions Three main activities Conceptual analysis of impact of partial decoupling Analysis of implementation across EU and empirical evidence of impact to date Modelling of impact using CAPRI model 2

3 Prices Conceptual Analysis What would we expect to find? Coupled payment for good 1 in country A Good 1 (2 countries situation) Good 1 (10 countries situation) Good 2 (2 countries situation) Good 2 (10 countries situation) 3

4 Supplies Key factors on impact include.. Profitability of sectors - If production is profitable in own right little difference between partial and full decoupling scenarios Cross-subsidisation- Are producers in decoupled countries treating the payment as decoupled? Coupled payment for good 1 in country A Good 1 (2 countries situation) Good 1 (10 countries situation) Good 2 (2 countries situation) Good 2 (10 countries situation) 4

5 Key factors cont d The magnitude of the premium as a proportion of the commodity price The relative size of the sector to the member states production (e.g. how much beef production comes from suckler cow production?). The share of the member state in EU production (large or small producer) Impact on producers (in coupled and decoupled countries) and consumers will depend upon supply and demand elasticities 5

6 Implementation* More Coupled Less Coupled Decoupled Crops France, Spain Greece, Italy All others Sheep Denmark, Finland, Greece All others France, Portugal, Spain Cattle Austria, Belgium, France, Denmark, Finland, All others Portugal, Spain Greece, Netherlands, Scotland, Sweden *This section draws on more recent work than that reported in the Defra study that was undertaken for the Pack Inquiry into future of SPS in Scotland 6

7 Models of Implementation Dynamic Hybrid / Regionalisation Finland Denmark England Germany Static Hybrid Sweden Luxembourg Northern Ireland Historic France Belgium Spain Portugal Austria Italy Greece Netherlands Scotland Ireland Wales More Coupled Less Coupled including Art 69 measures Decoupled 7

8 Degree of Decoupling - Country 8

9 Ratio of Coupled Payments to Total Payments Degree of Coupling - Sector Art 69 payments / Total payments Coupled payments / Total payments Tobacco Beef and veal Sheepmeat and goatmeat Arable crops Olive oil 9

10 Impacts to date Different patterns between coupled and partially decoupled countries? 10

11 Trends in Sheep Numbers 130 More Coupled Less Coupled Decoupled Scotland Index 2004 =

12 Trends in Beef numbers 130 More Coupled Less Coupled Decoupled Scotland Index 2004 =

13 Trends in Dairy Numbers More Coupled Less Coupled Decoupled Scotland Index 2004 =

14 Trends in Wheat area 120 More Coupled Less Coupled Decoupled Scotland Index 2004 =

15 Challenges Assessment of the impact of decoupling through simple analysis of trends in crop areas and livestock numbers proved difficult. The staggered nature of implementation across countries, the relatively short time frame and; the complexity of capturing the impact of other key drivers Need for modelling framework 15

16 Modelling framework Use of CAPRI Model Has a number of advantages Regional (NUTS) Endogenous prices and trade Article 69 included Consistent relationships between young animals and feedstuffs 16

17 Scenarios Use of CAPRI model Baseline Scenario - Continuation of the 2003 reform situation up to 2013 (ie with partial decoupling and Article 69) Full Decoupling Scenario - Complete removal of all coupled payments including those under Article 69 and transfer of these payments to Single Payment Scheme Article 69 Scenario Removal of commodity specific coupled payments but maintenance of Article 69 17

18 Model Key Features Sub-scenarios Only France fully decouples Only Spain fully decouples Other countries that have coupled payments fully decouple, but not France and Spain 18

19 Results Results EU impacts Country Impacts Regional Impacts 19

20 Change in Prices under Decoupling Scenarios + Spain Only France Only Other Countries All Fully Decoupling Per cent Soft wheat Barley Rape seed Sunflower seed Soya seed Beef Pork meat Sheep and goat meat Poultry meat Change shown is percentage change from scenario of maintenance of current situation up to

21 Change in Production Generally small changes in production Soft wheat Rape seed Pork meat Sheep and Goat Meat Poultry meat EU Region Barley Beef Per cent European Union European Union European Union European Union Percentage difference in beef production from baseline situation 21

22 Change in Ha/Hd More marked changes in numbers EU Region Soft wheat Barley Rape Suckler Cows Male adult cattle Ewes and Goats Per cent European Union European Union European Union European Union Percentage difference in area and livestock numbers from baseline situation 22

23 Change in sector revenues and welfare Change in Sector Revenues under Full Decoupling (per cent change) Single Payment Premiums GVA at producer prices plus premiums EU Region Cereals Oilseeds Meat Inputs Per cent European Union European Union European Union European Union Change in Welfare Measures (million euro) Consumer (Money Metric)^ Producer (Agricultural income) Taxpayer (FEOGA budget outlays first pillar) Total* European Union European Union European Union European Union Non-EU

24 Country Impacts (areas/head) Largest impacts in those that have maintained coupled payments Male adult cattle Adult Sheep and Goats EU Region Soft wheat Barley Rape Other Cows Per cent Germany France Portugal n/a Spain United Kingdom Percentage difference in area and livestock numbers from baseline situation 24

25 Beef production Belgium and Lux. Danmark Germany Austria Netherlands France Portugal Spain Greece Italy Ireland Finland Sweden United Kingdom Czech Republic Estonia Hungary Lithuania Latvia Poland Slovenia Slovak Republic Cyprus Malta Bulgaria and Romania Percentage difference in beef production from baseline situation 25

26 Welfare changes Gains are to those who decouple Consumers: Money metric Producers: Agricultural income FEOGA budget outlays first pillar EU Region Total Million Euro Germany France Portugal Spain United Kingdom Change in million euro from baseline situation 26

27 Per cent change Regional Impacts: Cows in France Cows Region Evidence that partial decoupling achieved its goal? 27

28 Impact of decoupling on suckler cow numbers Percentage difference in cow numbers from baseline situation 28

29 Results summary Price increases in the beef sector as a result of decoupling, but there is little impact on the arable sector More generally there is little impact on the arable sector in terms of areas and production. Exceptions in Greece and Italy due to the use of article 69, and in Portugal There are reductions in livestock numbers, but only fractional changes in overall meat production. The increase in the price for beef generally offsets any decline in production to slightly enhance beef production revenues 29

30 Results summary Sheep and goat meat production declines by less than one percent, but with potentially larger impacts regionally There is a welfare gain to EU from moving to full decoupling scenario Greatest in Spain and France The gains from decoupling unilaterally can be ranked as highest for France, then Spain and then the remaining countries. The impacts are felt unevenly across EU regions depending upon the structure of agricultural production within the region. 30

31 Health Check Project undertaken before health check More qualitative analysis of implications was undertaken Further decoupling Impact of possible extension to Article 69 (change to Article 38) 31

32 % change from baseline Beyond decoupling: Other relevant work Defra Vision Pillar 1 removal Further trade liberalisation Wheat Barley Oilseed Rape Dairy cows Beef cows Ewes Scenario B Scenario C Scenario D Impact of Pillar 1 reform on Crop areas and livestock numbers in England Source Renwick and Revoredo-Giha (2008) 32

33 Impact of Agricultural and Trade Policy Reform on future land-use in Europe for Defra (completion end of May 2010) Authors: Torbjörn Jansson (SLU, Sweden) Wolfgang Britz (Bonn University, Germany) Peter Verburg (Free University Amsterdam, The Netherlands) Alan Renwick and Cesar Revoredo-Giha (SAC, Scotland) 33

34 Alan Renwick 34