EU Modelling Workshop
New Challenges in Modelling EU
Agriculture and Agricultural Policy
Introducing Direct Payments in Central
European Countries
Martin Banse
Institute of Agricultural Economics
University of Göttingen
1
Table of Content
• How are Direct Payments Modelled in ESIM
• Scenario Assumptions
• Results of the Different Accession Scenarios
• Conclusions or ‘What needs to be done?’
2
CAP Policy Instruments in ESIM
Cereals
Price
policies
Trade policies
Supply
management
Income policies
minimum
price
export
subsidies/taxes
import tariffs
Obligatory
set aside
direct payments
coupled to area
Obligatory
set aside
direct payments
coupled to area
Oilseeds
Sugar
minimum
price
Import tariffs
Milk
Quota
Dairy
Products
minimum
price
Export
subisdies/tariffs
Beef and veal
minimum
price
Export
subisdies/tariffs
Other meat
Quota
Maximum export
quantities
direct payments
coupled to dairy
cattle
direct payments
coupled to beef
cattle
3
CAP Policy Instruments in ESIM
Cereals
Price
policies
Trade policies
Supply
management
Income policies
minimum
price
export
subsidies/taxes
import tariffs
Obligatory
set aside
direct payments
coupled to area
Obligatory
set aside
direct payments
coupled to area
Oilseeds
Sugar
minimum
price
Import tariffs
Milk
Quota
Dairy
Products
minimum
price
Export
subisdies/tariffs
Beef and veal
minimum
price
Export
subisdies/tariffs
Other meat
Quota
Maximum export
quantities
direct payments
coupled to dairy
cattle
direct payments
coupled to beef
cattle
4
How are Direct Payments Modelled in ESIM:
• Supply is modelled by separate
herd/area and yield function
• For livestock the herd function is
affected by direct payments
Hlvst,c = f (PPlvst,c, EDPlvst,c, capcc, wagcc)
• For crops the yield function is affected
by direct payments
EAcr,c=f (PPcr,c, EDPcr,c, capcc, wagcc, sac, tac)
5
Direct Payments in ESIM (Crops):
EAcr,c=f (PPcr,c, EDPcr,c, capcc, wagcc, sac, tac)
EDP cereals, c  dpc EU
where
erEU
erc

byc c
Ycereals, c
EDPcereals,c is the direct payment per ton of actual produce per hectare,
dpcEU is the direct payment for cereals per ton of base yield,
erEU is the exchange rate vs. USD,
erc is the exchange rate of country c
bycc is the base yield and
Ycereals,c is the actual yield.
6
Direct Payments in ESIM (Crops):
• dpc are defined as an amount of € per ton of base yield
for cereals (byc), which is the average weighted cereal
yield of 1989 to 1991 of the EU-15.
• For the CECs the base yield is obtained by averaging the
yields of three years prior to accession.
• The payment per hectare is the simple product out of
these two factors.
• For modelling purposes the original formula as applied
in the CAP is adjusted for the actual yield, i.e. actual
payments per ton of produce are applied
7
Direct Payments in ESIM (Livestock):
Hlvst,c = f (PPlvst,c, EDPlvst,c, capcc, wagcc)
EDPlvst adjusts the policy parameter bound to
heads to a payment per ton of actual
production
8
Budgetary Calculations:
• ESIM generates projections only for net
expenditure on trade measures,
compensatory and headage payments.
• Conversion factors to include
expenditure on administration, storage
and policy measures not modelled in
ESIM
• To calculate total FEOGA spending after
accession projections on commodities
not included in ESIM (goat and sheep,
vegetables, tobacco)
9
Scenarios:
• Status Quo EU-15: No Accession
• Status Quo EU-27: Accession to the EU in
2005 (Bulgaria and Romania in 2007) under
current acquis
• Moderate Reform EU-27: Threshold for
structural aid (80% of av. GDP) and cofinancing direct payments
• Substantial Reform EU-27: Threshold for
structural aid (90% of av. GDP) and phasing
out of de-coupled direct payments
10
Scenario Results (in Mio. €, 2013)
Total oper. Structural Agricultural
expenditure
policy
policy
Net
Contributions Transfers
Status quo EU-15
EU-15
As % of EU-15 GDP
65779
0.63
21384
0.21
38345
0.37
65779
0.63
Status quo EU-27
EU-15
12 accession candidates
EU-27
As % of EU-27 GDP
49186
37296
86482
0.78
5898
22100
27998
0.25
38239
13805
52045
0.47
81241
5241
86482
0.78
-32055
32055
Moderate Reform EU-27
EU-15
12 accession candidates
EU-27
As % of EU-27 GDP
43407
32718
76125
0.69
10657
22100
32757
0.3
27702
9227
36929
0.33
71511
4614
76125
0.69
-28105
28105
Substantial Reform EU-27
EU-15
12 accession candidates
EU-27
As % of EU-27 GDP
33795
29912
63708
0.57
4414
21500
25914
0.23
24333
7021
31354
0.28
59847
3861
63708
0.57
-26051
26051
11
Further Information:
Ecomomic Bulletin # 10-2001 of DIW
(German Institue of Economic Research)
available under: www.diw.de
12
Conclusions or Open Questions
• Direct payment modelled as component
of herd/yield function
• Other approaches?
• Even under fully de-coupled direct
payments production incentive?
13