Introducing Direct Payments in Central European Countries

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Introducing Direct Payments in Central European
Countries
EU Modelling WorkshopNew Challenges in
Modelling EU Agriculture and Agricultural Policy

• Martin Banse
• Institute of Agricultural EconomicsUniversity
  of Göttingen

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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?

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CAP Policy Instruments in ESIM
Price policies Trade policies Supply management Income policies
Cereals minimum price export subsidies/taxes import tariffs Obligatory set aside direct payments coupled to area
Oilseeds Obligatory set aside direct payments coupled to area
Sugar minimum price Import tariffs Quota
Milk Quota direct payments coupled to dairy cattle
Dairy Products minimum price Export subisdies/tariffs direct payments coupled to beef cattle
Beef and veal minimum price Export subisdies/tariffs
Other meat Maximum export quantities
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CAP Policy Instruments in ESIM
Price policies Trade policies Supply management Income policies
Cereals minimum price export subsidies/taxes import tariffs Obligatory set aside direct payments coupled to area
Oilseeds Obligatory set aside direct payments coupled to area
Sugar minimum price Import tariffs Quota
Milk Quota direct payments coupled to dairy cattle
Dairy Products minimum price Export subisdies/tariffs direct payments coupled to beef cattle
Beef and veal minimum price Export subisdies/tariffs
Other meat Maximum export quantities
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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,cf (PPcr,c, EDPcr,c, capcc, wagcc, sac,
  tac)

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Direct Payments in ESIM (Crops)

• EAcr,cf (PPcr,c, EDPcr,c, capcc, wagcc, sac,
  tac)

where 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.
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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

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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

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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)

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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 co-financing direct
  payments
• Substantial Reform EU-27 Threshold for
  structural aid (90 of av. GDP) and phasing out
  of de-coupled direct payments

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Scenario Results (in Mio. , 2013)
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Further InformationEcomomic Bulletin 10-2001
of DIW (German Institue of Economic
Research)available under www.diw.de
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Conclusions or Open Questions

• Direct payment modelled as component of
  herd/yield function
• Other approaches?
• Even under fully de-coupled direct payments
  production incentive?