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IDEMA — Result In Brief

Project ID: 502171
Funded under: FP6-POLICIES
Country: Sweden

Agriculture policy reforms impact farming

Policy reforms affect the targeted industries in a variety of ways. A team of researchers has analysed this impact for the agriculture industry, and farming in particular.
Agriculture policy reforms impact farming
An EU-funded project, 'The impact of decoupling and modulation in the enlarged Union : a sectoral and farm level assessment' (IDEMA), was set up with the aim of developing methods and tools for carrying out a comprehensive socioeconomic assessment of the impact of decoupling and modulation on Europe’s farming sector. The project’s approach was slightly altered following its commencement due to the subsequent introduction of the 2003 Common Agricultural Policy (CAP) reform.

The CAP reform brought radical policy changes for EU farm subsidies by implementing the decoupling of direct payments via a Single Farm Payment (SFP) per hectare of land. This was independent of any farmer's decisions regarding production, and aimed to boost the competitiveness of European agriculture and make it more market oriented.

IDEMA analysed the impacts of decoupling EU agricultural support as well as the 2003 CAP reform and the more extreme Bond scheme. The latter does not link payment entitlements and land. Study results showed that the impacts of the 2003 CAP reform were moderate with no strong indication that farmers intended to drastically change a strategic decision to secure off-farm labour. Results of the IDEMA model actually pointed to slower structural change thanks to decoupling of direct payments. For new Member States, CAP payments actually resulted in more competition for land and a greater willingness to maintain farming activities.

Decoupling's greatest impacts were seen in the beef and sheep sectors where a reduced supply of cereals, oilseeds, beef and lamb at the EU level led to their slightly higher market prices. This development acted to mitigate the impact of decoupling on production.

Based on project results, IDEMA partners concluded that a link between payment entitlements and land is crucial for a decoupling policy, which was shown to have a moderate impact on production. Comparisons with the Bond type of decoupled payment revealed a greater rate of structural change and idling of land, but an increase in farm profitability rather than a reduction.

On the whole, IDEMA findings point to the 2003 CAP reform having achieved its objectives of improved market orientation and higher farm incomes. However, there is support for arguments that note a shortcoming in the reform’s goal of improving competitiveness. This is a result of smaller farm sizes, higher land prices and slower structural change — of which the first two are a result of the 2003 CAP reform.

Initiatives such as the IDEMA project offer valuable tools in the face of ongoing policy reforms that affect many agricultural sectors and the people active in them.

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