Distributive Effects of the EU's New Common Agricultural Policy in German Agriculture

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D istributive e ffects of D irect P ayments in G erman a Griculture

unDer the n ew c ommon a Gricultural

P olicy of the e uroPean u nion

Harald von Witzke and Steffen NoleppaBerlin, Germany



© 2006 The German Marshall Fund o the United States. All rights reserved.

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About GMF

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A R T G M F U SB , N 2006

A

1 A C A P (CAP) 3

2 T w k

2 1 M q

2 2 D q 8

3 E 3 1 D

3 2 R

3 2 1 R q

3 2 2 A q

4 Ex

5 P

6 I

7 S

8 R

A x

D istributive e ffects of D irect P ayments in G erman a Griculture

unDer the n ew c ommon a Gricultural P olicy of the e uroPean u nion

H W zk S NB , G



The German Marshall Fund o the United States

Abstract

Keywords : C A P ; ; ; ;

; q

Abstract: T C A P (CAP) E U

q A , k

w x

I , w q

G F ,

w q k

K

N CAP q

75 T

E 100,000 E 300,000 w j P w ,

w , M w k

T w w , w ,

Authors:H W zk P C I A T D

H U B , G- /w / / ; w

- )

S N S F w w — w k , B , G(www )

A Report to the German Marshall Fund of theUnited States

T G M F U A

x

w U S E -w M P W

w W FF , GMF’ T D

w U S E

Berlin, November, 2006

*T w k D J HG F M F , AC k

, E BH G , J G , S P , J T

H U A

Distributive Effects of Direct Payments inGerman Agriculture under the New Common

Agricultural Policy of the European UnionH W zk , H U B , G

S N , , B , G



Distributive E ects o Direct Payments in German Agricultureunder the New Common Agricultural Policy o the European Union

The initial fear in the EuropeanUnion of nothaving enoughfood has now been replaced by the concern about

the budgetary and third –countryconsequences of too much foodin the EuropeanUnion.

T T R E

CAP I w 1957 TCAP w 1967–68 ww E E C

x T CAP

, w ( )

T CAP

j S w T R 1957; w F

CAP, w j :

• T CAP w E

w

k • I w

/ • I w G

E

T CAP w

M , w w k H w ,

j w w

M , w E U ;

, , w EU x A

CAP, j , G , w w w

w G w H , j

H w w

EU k ,

, I ,

x CAP T E

U w

– q

E U A , j

T E U EE C — A w w

w EU- ( ) w

w N ,

w

H w , E T

x 25 TE U

A ;

- E EU- k R

— x , 2005

40 EU (E C , 2006)

I , k CAP T ,

E U w

, E U

1 A short history of the CommonAgricultural Policy (CAP)




k

T 1980 w z ,

, , q q EU k W

CAPw

CAP EU , j

w k 1991 w k w M Sh T w w 1999 B

A d 2000 L x b C p sf 2003 T

I k k

T x F 1 w T

, w E

EU k w x ,

q, w

F , x

w k EU w

k

1997 1998 1999 2000 2001 2002 2003 2004 2005 200690

Source: FAPRI; Toepfer International.

100

110

120

130

140

EU farm gate price

EU intervention price

Figure 1: EU market price and intervention price of wheat

P r i c e

( E U R / t )




W , CAP w R

,

w z EUk ‘ ’

M x

x , w , ,

( E C , 1999)

C , k B

w I ,

A

x E U , x

2006

T j CAP , w

CAP k

CAP

O k CAPw

z j

( W zk ,1979; W zk S ,1981) U

CAP, EU k T ,

, w , ,

w w M , w

w ,

z x

T N CAP k x j A ,

z x

W x , w

z H w , , , N CAP ,

A w k A

w T ,

EU ( W zk , 1983; 1984;

K , 2004; T , 2006), US ( M D , 2006) w

j T E U w

N CAP , EUC x

A , x CAP, w x

j , w j

w , q N CAP , w k

x , T x

, w , w k

Large operations,which typically

secure highincomes, arethe primary beneficiaries, andnot the smallfarmers for whom this policy was intended.




CAP

w U N w CAP

CAP

I w q q

N CAP G G

, (Lä ) W z

w w E F w , w w

w k w w q

S , w w

G T , w w x

w A , w w

W w w




50

A q

bs (GA) T q G w

( W zk , 1984):

(5) GA =1

n n 1). yi − y j

j=1

n

∑i=1

n

∑

GA z w G:

• I w z

• I w

• I w w ,

z• T

w GA

2.2 Decomposing inequality into itscomponents

I , w w q G

q

, w q w T w

q q q

A ( ) w (x z ) T

():

7) G = r' l' . i

W -

w w ), G w ( W zk ,

S k , 1982; P , 1980; F R , 1969):

1.0

0.8

0.6

0.4

0.2

0.0

Figure 2: An exemplary Lorenz curve

0.0 0.2 0.4 0.6 0.8 1.0

Farms, cumulative and in p.c.

F a r m

p r o

f i t , c u m u

l a t i v e a n

d i n p . c .

A

B

a

b




(7) G = r' l' . i

(8)

r =

r 1

…

r n

I q (8), q (3) L z

(9)

l =

2 . 1− n −1

n − 1

2 . i − n −1

n − 1

2 . n − n −1

n − 1

…

…

(10) …

i =

1

1

☐ = ‘ x’

(H w , 1971, 2, 1107); W A = B C, j= b j j

W ( ) - ,

,G, q (7),

q T ,

(11) r' l' i r x

' l' i + r z

' l' i

(12)

r x =

r x1

r xn

…

(13) r xi =x i

yii=1

n

∑

(14)

r z

r z1

r zn

…

(15) r zi =z i

yii=1

n

∑

T w q (11) k k G w

H w , G ,

- , ,

[0,1] W w p p G (PPG ) T , w :

(16) G = PPGx + PPGz

B w GA

q :

(17) GA = ' ☐ ' · · 2 · -1

(18) GA = PPGAx + PPGAz



The German Marshall Fund o the United States10

(19) PPGAx = x' ☐ ' · · 2 · -1

(20) PPGAz = z' ☐ ' · · 2 · -1

N PPG PPGA

-




11

3 Empirical analysis

3.1 Data

T G F M

F , A , CP I w

G (“T ”) w EU w k (FADN) A 11,756

2005

( ) w T 250,000 I w ‘ ’

I , 2004/05 481 ,

E G T 2,876 T w

G T x W z

, w w w T w

x T A1 A x

T T k

( ) N CAP T

T

( BMVEL,2005) I ,

w w z T , wx k

I I ,

1.0

0.8

0.6

0.4

0.2

0.0

Figure 3: Lorenz curves of farm profits in German agriculture

0.0 0.2 0.4 0.6 0.8 1.0Farms, cumulative and in p.c.

F a r m

p r o

f i t , c u m u

l a t i v e a n

d i n p . c . FAMILY FARMS

1.0

0.8

0.6

0.4

0.2

0.00.0 0.2 0.4 0.6 0.8 1.0

Farms, cumulative and in p.c.

F a r m

p r o

f i t , c u m u

l a t i v e a n

d i n p . c . INCORPORATED FARMS

Source: Own computations based on BMELV.




‘ k ’ N – k ,

k

, , q /

T G () T , w

w ,

x w , A ,

q F

, q

N ,

q T

q k k T ,

q ( W zk , 1983) H ,

q k w k w

3.2 Results

3.2.1 Relative inequality

F 3 L z , q N

w q z T G

, G w [0,1] T

N

, w , , W zk (1983)

A , L z w

T , w q w

w T G

( 1)

T G

, T 1 w

T ( ), ,

I w w

Table 1: Relative inequality o arm profts, direct payments, and market profts in Germany

1 1 F (2005)

q ……

G

… PPG

… k PPG -

50271 17154 33117

1 2 I (2004/05)

q ……

G

… PPG

… k PPG -

64853 47053 17800S : Ow BMELV




1

I q

H w , k PPG w O T

A x A w q € 100

T , , w q H w , w

, q

w E , , k

3.2.2 Absolute inequality

T q q T 2 M q

w q A €,

, w , w

W € 40,000 w € 14,000 W

, kT

q T € 134,000 w

€ 100,000

Table 2: Absolute inequality o arm profts (€),direct payments and arm profts without direct payments

2 1 S (2005)

q ……

(GA )…

(PPGA )… w

(PPGA -)

40,313 13,756 26,557

2 2 I (2004/05)

q ……

(GA )…

(PPGA )… w

(PPGA -)

134,432 97,535 36,897

S : Ow BMELV




T 3 x F w

w–, –, – A ,

w w T ,

I , – € 400,000,

w

T – 14

T H ,

w

– T

4 Exemplifications

Table 3: Proft and direct payments in selected German arms

3 1 F (2005)

w …

( )

w k (FTE)

(€)(€)

k (

…1,117 37,659 29 — –9,626 11,397 –21,023

…1 1,058 17,752 63 — 44,802 25,830 18,972

…2 41 453 403 — 404,499 150,207 254,292

3 2 I (2004/05)

w …

( )

w k (FTE)

(€)(€)

k (

…94 519 1,442 26 8 –65,162 517,678 –582,840

…1 22 118 1,574 23 1 44,506 623,304 –578,798

…3 6 24 2,451 57 1 1,271,034 1,068,636 202,398

S : BMELV w BMELV1P € 40,000 € 50,000;2P > € 300,000;3P > € 500, 000

The high–profitfarm receives

almost 14 timesthe amount of

payments of thelow–profit farm…

The typical largeincorporated farm

receives morethan € 1 million

in payments.




1

€ 1 T w

–

T 3

H w ,

I , w x

– ,

(

A1 A x) E , z

w W ,

j w

N

N w CAP T w j

T , w , w




C , ,

I w , w w w

,

A , w q x

, w I , x

,

A ,

w

H w , w z T

w z

O z W

x

W w w

, w

w T

5 Predicting individual payments

Table 4: Explaining direct payments received per arm by acreage armed (WLS regression)

4 1 R WLS (2005) (€)

(€)1 1250 021 (2 509)

1 372 946 (112 336)j R2 999

F 12619 378

4 2 R WLS (2004/05)

(€)

(€)1 6971 894 ( 200)

1 404 815 (16 782)j R2 949

F 281 644S : Ow BMELV1 -




1

I 4 x

F

x - T , ,

k w w j

z N

x

A w , w T T

T ,

w w w x

T 5 x w

4 A ,

T

T 6 x x zT

4 A , ,

Table 5: Total direct payments (€) received and predicted in exemplary arms

5 1 F (2005)

w … w

( )… 11,397 12,066 –5 9

… 1 25,838 24,746 4 2

… 2 150,319 151,547 0 2

5 2 I (2004/05)

w …f w

( )… 517,678 590,715 14 1… 1 623,304 644,151 3 3… 3 1,068,636 999,175 –6 5S : Ow BMELV1 € 40,000 € 50,000;2 > € 300,000;3 > € 500,000

It is, in fact,possible to predictthe unknown sumof total directpayments with theinformation about

just one variableand that is farm

size in terms of area farmed.




Table 6: Predicted direct payments per arm by arm size

6 1 F (2005)

( ) (€)25 10,574

50 19,897

100 38,545

500 187,7321,000 374,2152,000 747,142

6 2 I (2004/05)

( ) x (€)500 209,380

1,000 411,7871,500 614,1942,500 1,019,0105,000 2,031,0477,500 3,043,085

S : Ow 4




1

A E U , w z w

w G W z

€ 100,000 € 300,000 T

7 8 A , € 100,000 w

, w € 300,000 w

T w w x€ 100,000 w

x € 300,000 N w w

, w , A 6

, w , , z

N

I , w x

T , T 7, 8 A1

6 Implications of payment limitations

Table 7: Farm proft, direct payments and market proft with payment limitations (€ 100,000)

7 1 F (2005)

( €)

k (€)

(€)

k (w

) (€)≤ 0 37,659 –21,023 11,397 –9,626

0–5 23,692 –8,606 11,179 2,5735–10 21,711 –5,056 12,636 7,58010–15 22,680 –1,491 13,944 12,45315–20 22,112 1,889 15,539 17,42820–30 37,193 7,728 17,220 24,94830–40 27,687 13,347 21,234 34,58140–50 17,752 18,972 25,830 44,80250–75 25,651 28,922 31,840 60,76275–100 10,890 47,458 37,939 85,397100–125 4,827 63,502 47,174 110,676125–150 2,294 88,503 47,263 135,766150–200 1,907 95,895 74,870 170,765200–300 826 132,018 100,000 232,018> 300 453 254,292 100,000 354,292

7 2 I (2004/05)

( €)

k w

(€)

(€)

(w

) (€)≤ 0 519 –582,732 100,000 –482,7320–5 202 –413,734 100,000 –313,734

A payment limitof € 100,000 per farm would haveonly very limitedeffects in family farms, while apayment cap of € 300,000 wouldhave no effect atall in these farms.




( €)

k w

(€)

(€)

(w

) (€5–10 94 –274,214 100,000 –174,21410–15 75 –595,832 100,000 –495,83215–20 104 –341,835 100,000 –241,83520–30 184 –310,802 100,000 –210,80230– 40 151 –439,092 100,000 –339,09240–50 118 –578,640 100,000 –478,64050– 75 205 –418,559 100,000 –318,55975–100 259 –365,899 100,000 –265,899100–125 141 –567,068 100,000 –467,068125–150 194 –482,976 100,000 –382,976150– 200 189 –438,312 100,000 –338,312200–300 265 –336,022 100,000 –236,022300–500 152 –484,768 100,000 –384,768> 500 24 202,442 100,000 302,442S : BMELV w BMELV

Table 8: Farm proft, direct payments and market proft withpayment limitations (€ 300,000); incorporated arms (2004/05) 1

( €)

k

(€)

(€)

w (

)≤ 0 519 –582,732 300,000 –282,7320–5 202 –413,734 300,000 –113,7345–10 94 –274,214 281,623 7,40910–15 75 –595,832 300,000 –295,83215–20 104 –341,835 300,000 –41,83520–30 184 –310,802 300,000 –10,80230–40 151 –439,092 300,000 –139,09240–50 118 –578,640 300,000 –278,64050–75 205 –418,559 300,000 –118,55975–100 259 –365,899 300,000 –65,899

100–125 141 –567,068 300,000 –267,068125–150 194 –482,976 300,000 –182,976150–200 189 –438,312 300,000 –138,312200–300 265 –336,022 300,000 –36,022300 –500 152 –484,768 300,000 –184,768> 500 24 202,442 300,000 502,442S : BMELV w BMELV1N , w f




1

x w wk

T :

( ) T

, , w T

q w

q

, w k k x , w x

, w

T w

US x 1996 US F B

( ) A , k w

W EU’ N CAP w

w w T j w

w z

( ) I w ,

w

( ) E , x

j




T w k

q I q

E U ’NCAP q w G

T q

G A q w

, w 75 q w A

€ 25,000 w € 17,000

T

E q € 500,000 T

x € 1,000,000 H w ,

j w k

U , k w T , w k w

W w w z

T , ,

w

T EU

I , w

z T € 100,000 € 300,000

T w

x

H w ,

w x T j k

, w

I x , q w TN CAP

M k ,

z T , , k

q T , N CAP

q w k

x , j

7 Summary and conclusions

The New CAP

contributes significantly to

inequality withinagriculture. It

keeps inefficientoperations aliveat the expense

of taxpayersand society at

large, and itdelays structural

adjustment inagriculture toward

farms that areeconomically

inefficient.




BMELV (G F M F , A -, C P ), S

, 2004/05 2005

BMVEL (G F M CP , F , A ), M

A k, 2005

E C , “C E - C M C

A ” I P , B , O 1999

E C , www / /_ / _ _ J 23, 2006

FAPRI, “FAPRI S O k D ” A ,IA: I w S U , 2006

J C H F , “G w F D I ”Q. J. E .92 (1978): 17–53

R A H w ,D P b b s S s s N wY k: J W , 1971

W K , “U M P A CAP ” P OECDw k ‘I N A H I I ’ P , 2004

J M D , “G w F S z D F P ”USDA/ERS

E B f 6, 2006

G P , “T D I FC ”Q. J. E .95 (1980): 451–473

V M R , “Tw D CR ” J. R S . S .132 (1969): 418–425

A F S k , “I q D FC ”E 50 (1982): 193–211

J T , “C CAP: T E P - L EU F S ”

www , J , 2006 T I , “S I

G F M k ” H : ACTI,A 2006 H W zk , “P , C A PP P D I W G A ”E . R v. A . E .6 (1979): 61-80

H W zk G, S , “M I

P ”Th R Ch M A B B L G ( ), G : G w , 1981

H W zk , A M d f Abs d R vI D ff s A K : V k, 1983

H W zk , “A M I D A : T E ”E . R v. A .E 11(1984): 67–85

8 References




Table A 1: Farm proft class, profts and number o observations per proft class

A 1 1 F (2005)

( €)

(€)

(€

≤ 0 1,117 37,659 –9,626 11,3970–5 672 23,692 2,573 11,1795–10 724 21,711 7,580 12,63610–15 842 22,680 12,453 13,94415–20 910 22,112 17,428 15,53920–30 1,696 37,193 24,948 17,220

30–40 1,473 27,687 34,581 21,23440–50 1,058 17,752 44,802 25,83050–75 1,630 25,651 60,762 31,84075–100 785 10,890 85,397 37,939100–125 377 4,827 110,676 47,174125–150 179 2,294 135,766 47,263150–200 171 1,907 170,765 74,870200–300 81 826 237,862 105,844> 300 41 453 404,499 150,207

A 1 2 I (2004/05)

( €)

(€)

(€

≤ 0 94 519 –65,162 517,5700–5 34 202 2,710 416,4445–10 17 94 7,409 281,62310–15 16 75 12,766 608,59815–20 12 104 17,129 358,96420–30 27 184 24,398 335,20030–40 23 151 35,152 474,24440–50 22 118 44,506 623,14650–75 31 205 61,602 480,16175–100 37 259 86,326 452,225100–125 26 141 115,600 682,668125–150 29 194 139,218 622,194150–200 37 189 174,345 612,657200–300 44 265 249,202 585,224300–500 26 152 368,832 853,600> 500 6 24 1,271,034 1,068,592S : BMELV w BMELV

Appendix



O f f i c e s

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1744 R Street NWWashington, DC 20009T 1 202 745 3950 f 1 202 265 1662e [email protected]

Berlin Oranienburger Str. 13/1410178 Berlin, Germany T 49 30 28 88 13 0f 49 30 28 88 13 10

B ratislava

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P aris

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B russels

Transatlantic CenterRésidence PalaceRue de la Loi 155 Wetstraat1040 Brussels, BelgiumT 32 2 238 5270f

32 2 238 5299B elgraDe

Balkan Trust for Democracy Dobrac̆ ina 4411000 Belgrade, Serbia and MontenegroT 381 11 30 36 454f 381 11 32 88 022

a nkara Tunus Cad. No. 15/4Kavaklidere 06680Ankara, Turkey T 90 312 425 6677f 90 312 425 3399

www.gmfus.org

Distributive Effects of the EU's New Common Agricultural Policy in German Agriculture

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