Analysis of CAP Impact on Farm-Household Investment Behaviour
The aims are: (i) to assess the impact of the CAP reform process - with special focus on the Single Payment Scheme - on farm-households’ investment behaviour using scenario analysis (an 8-12 years horizon), and (ii) to evaluate the effect of investment behaviour on the sustainability of farming systems, and to draw appropriate policy recommendations.
Farm investment is an important policy issue because the current farm production is a function of several inputs, including the current level of capital, which depends on past investment decisions. Annual investment decisions affect both current and future production. Thus, any policy that increases investment will influence farm output for some years into the future. Moreover, the results of the Common Agricultural Policy (CAP) reform process (with the decoupling reform in 2003 and the on-going one for 2013) is largely determined by changes in farmers' investment behaviour, particularly with respect to more efficient and greener technologies and production processes.
Recent studies on the impact of the CAP reform process, as well as on farming structures in new Member States, also emphasise the role of non-policy and non-farm variables associated with farm households (e.g. demography, ageing) and the surrounding economic environment (e.g. shadow wages in farm households, return on capital, quality of life in rural areas, credit constraints, uncertainty on policy, prices, climate …) in determining farmers’ investment behaviour.
By investigating farmers’ investment behaviour, and evaluating the impact of different CAP scenarios on the selected groups of farming systems, the farm-investment studies developed at SUSTAG contribute to the understanding of the relation between policy objectives and farmers' behaviour.
In 2005, Agrilife-Sustag started, in cooperation with Directorate General Agriculture, a farm-level modelling activity based on direct survey of a non representative sample of European Union (EU) farmers. It aimed at investigating farmers’ investment behaviour, and evaluating the impact of different CAP scenarios on a selected group of farming systems.
The first report on "Investment Behaviour in Conventional and Emerging Farming Systems under Different Policy Scenarios" was issued in 2008 (survey realized in 2006).
A second report "Farm Investment Behaviour under the CAP Reform Process" was issued in 2011 (survey realized in 2009).
Viaggi, D., M. Raggi, et al. (2010a). "The Impact of EU Common Agricultural Policy Decoupling on Farm Households: Income vs. Investment Effects." Intereconomics 45(3): 188-192.
Viaggi, D., M. Raggi, et al. (2010b). "An integer programming dynamic farm-household model to evaluate the impact
of agricultural policy reforms on farm investment behaviour." European Journal of Operational Research 207: 1130–1139.
Viaggi, D., M. Raggi, et al. (2011a). "Farm-household investment behaviour and the CAP decoupling: Methodological issues in assessing policy impacts." Journal of Policy Modeling 33: 127–145.
Viaggi, D., M. Raggi, et al. (2011b). "Understanding the determinants of investment reactions to decoupling of the Common Agricultural Policy." Land Use Policy 28: 495–505.
A new survey will be realized in 2013 on a larger sample of farms.
Sergio Gomez y Paloma