This study analyses impacts of the year 2003 reform of the Common Agricultural Policy (CAP) on farmers, markets for agricultural products and the economy. In the reform, most of the former direct payments to farmers are transformed into a decoupled single farm payment. The analysis is conducted using the CAPRI model. The reform is compared with a fully implemented Agenda 2000 (the previous reform) and the comparison is made for 2009.
Results from the CAPRI analysis reveal a large increase in fallow land in Sweden, due to decoupling. The reason for this result is that cereal production (which is unprofitable without the area payment to cereals) will be shut down. Swedish cereal acreage drops by 14 percent due to the reform. Crops which previously were not eligible for area payments, benefit to some extent from the reform. The largest impacts on the livestock sector are observed in beef and mutton production. Produced quantity of beef and mutton is expected to drop by approximately 10 percent due to the reform. The number of dairy cows in Sweden is not affected by the reform. Regional differences within Sweden are taken into account in the analysis. In Northern Sweden, there is a larger decrease in cereals areas and a larger increase in fallow land. There are also some differences between Sweden and the EU-15 average. The production of cereals, beef and mutton is expected to drop more in Sweden than in the EU-15. In the beef and sheep sectors this result is due to the fact that many other countries have opted for keeping parts of the payments coupled to the production.
Product prices are affected by the reform, since the supply of many of the products decreases. Producer prices of cereals, oilseed, beef and mutton are 6 to 11 percent lower in the reform scenario than in the Agenda 2000 scenario. Price increases occur only in the dairy sector.
From a welfare economic perspective, the reform is almost a zero-sum game. Farmers’ incomes rise when unprofitable production is shut down and when product prices increase. Consumers lose on the reform, due to slightly higher food prices. Also, taxpayers are worse off, since government spending increases.