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The 2003 CAP reform: Do decoupled payments affect agricultural production?
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2009
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2003 CAP.pdf
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P. Howley, K. Hanrahan and T. Donnellan. (2009) The 2003 CAP reform: Do decoupled payments affect agricultural production? RERC Working Paper Series PUT 09-WP-RE-01
Abstract
The move from coupled payment policy instruments to payments that are decoupled
from production have made estimating future trends in agricultural output much more
challenging. Using a dynamic multi product partial equilibrium model, the overall
aim of this paper is to examine the potential supply inducing effect of decoupled
payments. This issue is important in the context of WTO negotiations, and, in
particular, in discussions surrounding the appropriateness of decoupled payments
being included as a ‘green box’ policy. The results suggest that farm operators, to a
large extent, do not treat these payments as fully decoupled and they do in fact
maintain a strong supply inducing effect on agricultural production. Findings suggest,
however, that this trade distorting effect is less than previously coupled payments.