The Impacts of Redesigning European Agricultural Support

The objective of this paper is to assess the impact of decoupling at the individual member state level in the European Union and in non-member regions of liberalizing domestic support in the EU. Three scenarios are analysed to illustrate the impacts of eliminating or decoupling the European agricultural support. We found that the existing domestic support payments in the EU are indeed coupled to production and hence affect production decisions and distort international trade with adverse effects on the export potential of developing countries as a consequence. Further, the value of this support is capitalised in significant higher land prices in Europe than would otherwise prevail. The scenarios illustrate the economic implications of transforming all domestic support payments (as well as other distorting policies) into a nationally homogenous and fully decoupled payment to all agricultural land, irrespective of a farmer's decision to crop or not. The analysis suggests that it is possible to convert the existing agricultural support into a fully decoupled payment which would not distort international trade and it indicates a way forward to offset the negative impact on land prices. Such a policy would also comply with the WTO rules (i.e. fall within the green box as decoupled income support). The analysis also suggests that such a policy reform could be achieved at somewhat lower budgetary costs as compared with the existing costs of the Common Agricultural Policy.