Economic and environmental effects of decoupled agricultural support in the EU

Abstract

This article reports findings from a simulation model representing the European farming system disaggregated at different scales. This modeling experiment explores the effects of various decoupling options associated with the 2003 European agreement on gross margins, land use, shadow cost of land, and greenhouse gas emissions. Our results show increases in the farmers' gross margins when decoupled support is maintained equal to the amount of direct aid previously attributed to agricultural production, assuming unchanged prices. Land used for pasture increases at the expense of land used for cereals and protein crops. The extent to which these effects materialize depends on the policy options selected by Member States when implementing the Luxembourg agreement. When they opt for some recoupling of support, adverse net economic impacts occur for producers. Regional differences in impacts are more pronounced than the analysis aggregated at European and national scales suggests. This highlights the need for further work based on geostatistical downscaling. JEL classifications: C67, D78, Q18, Q54

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