Modelling the regionalised impacts of CAP reform embracing both pillars – challenging path-dependent thinking in

policy discourse?

Janet Dwyer, Torbjörn Jansson, Allan Buckwell, Ben Allen and Wolfgang Britz

Policy symposium on CAP reform,AES Annual conference, Warwick 2013

Outline

Taking stock of the policy options – what is on the table, what alternatives might deliver better?

The challenges of ex-ante modelling:• Constructing a two-pillar CAP – the models and their

scope• How to model pillar 2 impacts?• Defining the scenario – what assumptions, what

rationales?

Some model results – summary findings for farming, environment, rural society

Comparative assessment, methodological lessons learned, and reflections on the potential of this approach, for policy

CAP Reform Process and options

Council has an agreement on MFF (budget) and CAP reform framework – await negotiation & agreement with European Parliament (June?)

Overall CAP budget cut (8% - 11%), reform retains Ciolos’ main elements:• Convergence – slowly towards more uniform P1 payment

• Greening – more widespread environmental management, beyond cross-compliance

Policy options

• Current proposals for greening centre on Pillar 1: ’30% topslice and add standard conditions’ model

• Some UK critics (environment, farming, Defra) claim Pillar 2 would be better (tailoring, clearer benefit, greater efficiency)

Defining the scenario

CAPRI already been used to model impacts of Pillar 1 Greening with convergence (Britz et al, 2013)

CAPRI-RD used to model an alternative, Pillar 2 greening approach, with convergence

Assume:• Pillar 1 is cut by 8%, for all Member States

• Convergence implemented (MS shares as agreed by the Parliament)

• 25% of resulting Pillar 1 transferred to Pillar 2 (not co-financed, no reverse switching)

• Obligation to use 50% of transferred funds on environmental measures, remainder to be spent “as before”

• Conservative / path-dependent Pillar 2 allocations (as per informal release); 50% only on Agri-Environment, LFA and Natura 2000 measures

A modelling opportunity: CAPRI-RD

CAPRI: a partial-equilibrium, EU27 regionalised agri-sector model for CAP Pillar 1 impacts on farm sector, prices & markets, BUT cannot examine wider economy.

Since 2000, especially following enlargement, Pillar 2 funds and impacts are increasingly significant

CAPRI-RD: extend CAPRI with regional CGE approach to capture wider impacts, based on ‘RegFin’ (Ruralia)

SAMs built for NUTS2 regions, functional interface to allow iterative linkage between CAPRI and CGEs: both resolve together

New environmental and socio-economic indicators (better suited to measuring these CAP impacts), under development within the modelling framework

Model components

CAPMOD = agricultural supply model for EU: fixed prices, assumes profit max, 61 production activities, 276 independent regional models. Differentiates intensive & extensive farming; can be disaggregated by farm type

globMarket = global multi-commodity market model for 40 world regions, giving price feedback

RegCGE = in each region, a computable CGE represents regional economy in aggregate: 11 production sectors, consumer (household), government. Can model investment aids & wider economy impacts from Pillar 2, feed labour & capital prices back to CAPMOD

Linkage between all components to enable iterative resolution

Model interactions

CAPMOD RegCge

Agriculture:ProductionInput use

Price indexLand rent

Economy:Labour priceCapital priceInput prices

Challenge: how to model Pillar 2 impacts?

RD actions Explanation Measures 2007-13

humCapAgr "Investment in human capital in agriculture" (training, advice, KE, farm relief, etc.)

111, 114, 115, 124, 133, 142, 143

humCapRest "Investments in human capital in other sectors" (training for non-farmers/foresters, LEADER, technical assistance)

331, 341, 411, 412, 413, 421, 431, 511,

InvAgr "Increase capital stock in agriculture" (farm investments, agricultural infrastructure, set-up aid for young farmers)

121, 112, 131, 141, 144

demGovCns "Increase government demand for construction" (basic rural services, village renewal, conserving rural heritage)

321, 322, 323*

capAgrFor "Capital subsidies to agriculture and forestry" (i.e. those investments which cannot be separated, between these sectors)

122, 125, 126

capFop "Capital subsidies to food processing" (adding value) 123

incSub "Income transfers to households" (early retirement, food quality schemes)

113, 132

agriEnv "Agri-environmental measures" (for land management & non-productive capital, costs should only cover income forgone)

214, 215, 216*

landSubAgr "Land subsidies to agriculture" (LFA and Natura 2000) 211, 212, 213*

landSubFor "Land subsidies to forestry" (land-based, forestry environment payments)

221, 222, 223, 224, 225, 226*, 227

subsServ "Production subsidies to services" (tourism, micro-business, non-agricultural diversification of the rural economy)

311, 312, 313

Result 1: Land use changes

Grassland Arable land

Red: <-1%Yellow: no changeGreen: >+1%

Cattle herds and suckler cows

All cattle Suckler cows

Agricultural incomes (% to baseline)

Nitrate surplus (total, % to baseline)

Baseline – I. Pérez Domínguez

Comparing with Pillar 1 greening results: which looks better?

Feature Greening with Pillar 1 (Britz et al scenario) Greening with Pillar 2 (our scenario)

Suckler cows Stock numbers fall c.4% drop for EU27

Mainly decoupling effect

Stock numbers fall for EU27 <2%

Decoupling effect + pillar 2 ‘recoupling’

Land use change Grass + 1% Arable -0.5% UAA ~0%

Mainly grassland retention and EFA conditions

Declines 0.7%, equal for crops & grass

Fewer subsidies to land

Farm Incomes Increase by around 2%

Combined effect (NB no budget cut)

Down by 2.5%, but EU12 up

8% Budget cut effect

Nutrients Very small N reductions

Combined effect Small reductions Due to less production

Soil erosion Negligible impacts Not measuredBiodiversity Slightly positive

impacts, Combined effect Not measured

landscape No impact Not measuredGHG Small decline Small declineFarm labour Falls a little 0.7% rise overall,

falls in northSwitch from land to labour &capital

GDP Not measured Decrease? Tiny!

Points for discussion

Are the results plausible? What do they imply about policy choices?

How far do model assumptions constrain results? Is this distorting the policy value of the work?

What improvements are worthwhile?

If we don’t improve, what alternatives are there?

- Thank you!