Reforming the CAP: A Partial Equilibrium Analysis of the MTR Proposals

Abstract

In the Mid-Term Review (MTR), the European Commission proposed a series of changes to the Common Agricultural Policy (CAP). An important part of these changes was significant decoupling of support payments from production. In this paper, a partial equilibrium model of the EU agricultural sector is used to estimate the potential impacts of the MTR proposals on EU and world agricultural markets over the period 2004-2009. Effects of the MTR proposals are evaluated by comparing estimated outcomes under the proposals to those that would result under a current-policy baseline. The changes that are made in the MTR have the effect of reducing the production of the major commodities by varying amounts based on the importance of payments in production and the degree to which these payments are currently production inducing. For example, total area harvested for nine major crops falls by about 2 percent under the MTR proposals. In the livestock sector, however, where current payments are strongly coupled and form a large part of producers' income, the reductions in production are projected to be more significant.