The Regional Incidence of European Agricultural Policy: Measurement Concept and Empirical Evidence

Abstract

The Common Agricultural Policy (CAP) of the European Union (EU) is characterized by a wide array of individual policy measures, which differ by the category of instruments, across commodities and over time. This situation is similar to many other industrialized countries. Consequently, the net impact of the policy mix on price incentives for producers and consumers had been intransparent for years. The existing level of agricultural protection, as a basis for agricultural trade liberalization, had also been unknown. This study utilizes a regionalized concept of producer support estimates (PSEs) to elaborate the primary effects of the CAP on producer revenues at the regional level. The data used are based on 26 regions located in Germany as well as the years 1986-1999. One striking result is that a uniform CAP does affect the regions very differently. This finding is valid according to all suggested measures of producer support. Some regions are clearly more favoured than others. Another main finding is that recent reforms of the CAP have not reduced significantly the average level of agricultural support in the federal state of Hesse, Germany, and in 21 of 26 regions of this state. Statistically significant downward trends in absolute producer support due to price support were associated with significant upward trends due to direct payments. A third interesting outcome is that it is important to define the measurement concept of support precisely, if the CAP is targeted at producer support. Absolute and relative PSE measures due to the CAP and price support are fully uncorrelated with each other. If transfers under the CAP are targeted in terms of absolute support, e.g. may induce an arbitrary interregional distribution of PSE in relation to farm revenues.