EU Common Agricultural Policy Post-2020: Exploring the Effects of Safety-Net Policy Instruments

Kirsten Boysen-Urban, Ole Boysen, Alan Matthews and Martina Brockmeier

No 332991, Conference papers from Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project

Abstract: High price volatility in EU and world markets, caused by climate change and extreme weather events, the growing market orientation of the Common Agricultural Policy (CAP) of the EU and other factors, led to income uncertainty. This pushed the discussion about the future design of the EU CAP aiming at more target-oriented policies to stabilize farm income. At the same time the financial crises and their consequences increased the focus on the efficiency of CAP instruments. Compared to the US farm bill, risk management instruments have played only a minor role in the EU CAP in the past. Against this background, this study aims at analysing different policy options of so-called safety nets in the future CAP to cover downside risks of farm income. Specifically, this study aims at answering the following questions. How, and to what extent can safety net instruments protect from downside risks and stabilize agricultural incomes? How much will these flexible payments increase the CAP budget costs? Are the current US safety net policies a suitable model for designing such policies for the CAP post 2020? To answer these questions, this study applies an extended version of the Global Trade Analysis Project (GTAP) that depicts a much more detailed representation of the EU CAP policy instruments. In addition, this extended model includes new policy instruments to protect the agricultural sector in case of price, revenue and income losses. A stochastic component affects production and prices and thus income based on exogenous global yield shocks and enables the assessment of the income stabilising effect of the different policy instruments. We simulated a baseline scenario and three policy scenarios many times using the extended GTAP and considering the full range of yield shocks. This set-up allows us to assess the effects of safety net instruments on income stabilization and budget cost.

Keywords: Agricultural; and; Food; Policy (search for similar items in EconPapers)
Date: 2018
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Working Paper: EU Common Agricultural Policy Post-2020: Exploring the Effects of Safety-Net Policy Instruments (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:ags:pugtwp:332991

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