IDEMA is a research project supported by the European Commission's Sixth Framework Programme (Contract No SSPE-CT-2003-502171). Maximum contribution from the European Community: EUR 1 359 650. The project runs over the three-year period 2004-2006.
| 1. | Swedish Institute for Food and Agricultural Economics (SLI) | Sweden |
| 2. | Imperial College of Science, Technology and Medicine (Imperial) | UK |
| 3. | Institute of Agricultural Development in Central and Eastern Europe (IAMO) | Germany |
| 4. | Marche Polytechnic University of Ancona (UNIVPM) | Italy |
| 5. | Institut für Agrarökonomie der Universität Göttingen (IFA-GOE) | Germany |
| 6. | Institut National de la Recherche Agronomique (INRA-ESR) | France |
| 7. | Research Institute of Agricultural Economics (VUZE) | Czech Republic |
| 8. | Lithuanian Institute of Agrarian Economics (LAEI) | Lithuania |
| 9. | Research Institute of Agricultural and Food Economics (VUEPP) | Slovak Republic |
The research aims to develop methods and tools to provide a comprehensive socio-economic assessment of the impact of decoupling on the EU farm sector. Decoupling means that support to agriculture should have no effect on production. The project will assess the impact of decoupling on market demand and supply, trade, localisation of production, land use, environment, land markets, structural change, farm income, and farmers' entry/exit behaviour. Since no single methodological approach is able to take into account all aspects of this complex issue, the project is organised around three complementary approaches. These approaches are: (a) survey-based analysis of farmers' strategic decisions, (b) dynamic farm based regional modelling and (c) sector level and general equilibrium modelling. The vast diversity of regions covered by the project, including the new member states and typical Mediterranean areas, will make it possible to synthesise policy implications relevant for the diversity of challenges facing European agriculture.
The introduction of farm payments decoupled from production is a radical change in the institutional framework governing EU agriculture. A farmer's adjustment to decoupled payments is a unique strategic decision rather than a repetitive one. This is especially the case regarding decisions to enter or exit from agriculture, invest in activities outside farming, abandon land or renegotiate land contracts. If decoupling affects farmers' strategic decisions, then we would expect impacts on structural developments of holdings, land use and supply of agricultural commodities.
Theoretically, decoupled payments do not change market returns and, therefore, do not favour investments in farming relative to off-farm investments. However, if farmers are facing financial stress or credit constraints, payments may stimulate investments. Since payments affect both the income and wealth of recipients, they may also influence farmers' labour supply. Therefore, the assessment of the impact of decoupling, especially in the new member states, must take into account the nature of labour and capital markets.
The mid-term review proposal to decouple EU agricultural support from production has stimulated lengthy debate. It has been argued that a decoupled single farm payment would lead to substantial abandonment of production in several regions and sectors and exodus from the most disadvantaged rural areas. Some farmers' organisations have argued that production will shrink and considerable job losses will ensue. It has also been claimed that farmers in less favoured regions may risk to be squeezed out as land rents are not seldom below the arable land payment. Landlords may reclaim the land from leaseholders and cash the decoupled payment themselves. Another concern, which has been voiced, is that decoupling will distort the market for previously unsupported products, such as fruits and vegetables.
The overall topic of the project is policy related and, therefore, the main purpose will be to aid the policy-making process in the agri-food sector. As the implications of decoupling are multifaceted, a multiplicity of complementary approaches needs to be applied.
The project will cover the diversity of agriculture in the enlarged EU, since the effects of decoupling are likely to vary across Europe. Particular problems and implications of introducing CAP direct payments in the new member states will be analysed. The project will provide methods and tools for a comprehensive assessment of the socio-economic impact of decoupling on the farm sector in the enlarged EU. Analyses to be performed include:
The three main methodological approaches are:
One of the first steps is to review previous experience with decoupling. This review will serve as a background for the survey and modelling work. The purpose of the survey instrument that will be developed is to analyse how decoupling influence the strategic decisions of farmers, on both individual and corporate farms. This part of the project will investigate how farmer's strategic responses to decoupling will vary according to different farm structural and managerial characteristics. Particular emphasis will be put on the investment decisions, on- or off-farm, and on the decision to stay in or exit from agriculture. The survey work will be conducted in five selected countries and it will be based on sub-samples of the national FADN population. The possibility that farmers may not consider a policy reform to be credible or permanent will also be taken into account.
The two modelling approaches will, taken together, cover the farm, regional, sector and macroeconomic levels. Special focus will be given to the regional level. Related to the modelling work is a survey of the functioning of the land market in current and new member states. Specific conditions related to the introduction of CAP direct payments in the new member states are also going to be investigated.
For the regional modelling and analysis, an agent-based, dynamic and spatial farm level model, AgriPoliS, will be further developed. It will take into account the behaviour of different farm types and will be adapted to cover the spectrum of agriculture in the enlarged EU. Within the project 10 to 15 regions will be analysed. The model explicitly takes account of actions and interactions (e.g. rental activities, investments, and continuation of farming) of a large number of individually acting farm-agents. Model developments aim at extending the analysis of decoupling, at the farm and regional level, to include the impact on structural change, income distribution and efficiency. Further, an environmental impact module linking changes in land use and production technologies to indicators of environmental quality will be developed. The AgriPoliS approach will also be adjusted to Mediterranean farming systems with cultivation of permanent crops.
The analysis of the implication of the single farm payment on production, consumption and trade in the EU-25 will be accomplished by sector and general equilibrium modelling. It includes further development of a partial equilibrium model (ESIM) and country specific general equilibrium models. The model development aims at including the types of land use relevant to the impact analysis of decoupling, and adapting the GE model for analysis of farmers' investment decisions and labour supply under decoupled income payments in the presence of capital and labour market distortions.
The knowledge created during the project will consist of models and methods, a database, and the results of the impact analyses of various policy scenarios. User groups of the project's results are policy-makers and policy advisors in the EU-25; farmers', landowners' and environmental organisations; international organisations; and the international academic community. They will have access to the project's results during the implementation period by the means of a) a specially dedicated website; b) a series of working papers; c) project organised workshops and conferences; d) participation in international seminars and conferences, e) publications in the media and specialised journals; f) publication of the proceedings of the project conferences; and g) efforts will be made to publish a book containing the overall results of the project.
Working papers will be produced throughout the lifetime of the project. Working papers will cover methodological issues, model descriptions, analytical results and policy discussions. The working papers will be made public on the website of the project.