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Decoupled Payments to EU Farmers, Production, and Trade: An Economic Analysis for Germany

Harald von Witzke, Steffen Noleppa and Gerald Schwarz

No 59853, Working Paper Series from Humboldt University Berlin, Department of Agricultural Economics

Abstract: After an extended process of reform the European Union has introduced direct payments to farmers which are decoupled from production decisions as a central element of its Common Agricultural Policy. They are also referred to as Single Farm Payments. In this paper we analyze the production and trade effects of this policy and its compatibility with WTO international trade rules. A survey of the literature suggests that the system of direct payments in its present form has effects which are analogous to a subsidization of agricultural land. Thus, they act to increase production and trade. Furthermore we quantify the total economic cost of production of selected commodities in the European Union and compare them to the price at which EU production is sold in foreign markets. Our analysis suggests that the costs of production in the European Union for key agricultural commodities are below international prices. It can be established that commodities for which the European Union is a net exporter are sold below cost, for extended periods of time and in substantial quantities. The EU system of decoupled payments to farmers, thus, acts to inflict economic injury to third countries. Under WTO rules, dumping can only occur when a country is an exporter. In this paper we demonstrate that on the markets included in the analysis dumping occurs on the market for wheat. The extent of injury is exemplified for Australia.

Keywords: Agribusiness; Agricultural and Food Policy; Food Security and Poverty; International Development; International Relations/Trade; Risk and Uncertainty (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-agr
Date: 2010-03
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Persistent link: https://EconPapers.repec.org/RePEc:ags:huiawp:59853

DOI: 10.22004/ag.econ.59853

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