This document discusses modeling the regional impacts of CAP reform, specifically comparing a Pillar 1 greening approach to a Pillar 2 greening approach. It outlines how the CAPRI and CAPRI-RD models were used to simulate the impacts of transferring 25% of Pillar 1 funds to Pillar 2 for environmental measures. The modeling found the Pillar 2 approach resulted in smaller declines in suckler cow numbers, declines in nitrate surplus, and a small rise in farm labor compared to the Pillar 1 approach. The document raises questions about how far the model assumptions may constrain the policy implications and what improvements could make the models more useful for policy analysis.

1. Modelling the regionalised impacts
of CAP reform embracing both pillars
– challenging path-dependent thinking in
policy discourse?
Janet Dwyer, Torbjörn Jansson, Allan
Buckwell, Ben Allen and Wolfgang Britz
Policy symposium on CAP reform,
AES Annual conference, Warwick 2013

2. Outline
 Taking stock of the policy options – what is on the table, what
alternatives might deliver better?
 The challenges of ex-ante modelling:
• Constructing a two-pillar CAP – the models and their
scope
• How to model pillar 2 impacts?
• Defining the scenario – what assumptions, what
rationales?
 Some model results – summary findings for farming,
environment, rural society
 Comparative assessment, methodological lessons learned,
and reflections on the potential of this approach, for policy

3. CAP Reform Process and options
 Council has an agreement on MFF (budget) and CAP
reform framework – await negotiation & agreement with
European Parliament (June?)
 Overall CAP budget cut (8% - 11%), reform retains
Ciolos‟ main elements:
• Convergence – slowly towards more uniform P1 payment
• Greening – more widespread environmental management,
beyond cross-compliance
 Policy options
• Current proposals for greening centre on Pillar 1: ‟30%
topslice and add standard conditions‟ model
• Some UK critics (environment, farming, Defra) claim Pillar
2 would be better (tailoring, clearer benefit, greater efficiency)

4. Defining the scenario
 CAPRI already been used to model impacts of Pillar 1
Greening with convergence (Britz et al, 2013)
 CAPRI-RD used to model an alternative, Pillar 2
greening approach, with convergence
 Assume:
• Pillar 1 is cut by 8%, for all Member States
• Convergence implemented (MS shares as agreed by the Parliament)
• 25% of resulting Pillar 1 transferred to Pillar 2 (not co-financed, no
reverse switching)
• Obligation to use 50% of transferred funds on environmental
measures, remainder to be spent “as before”
• Conservative / path-dependent Pillar 2 allocations (as per informal
release); 50% only on Agri-Environment, LFA and Natura 2000
measures

5. A modelling opportunity: CAPRI-RD
 CAPRI: a partial-equilibrium, EU27 regionalised agri-
sector model for CAP Pillar 1 impacts on farm sector,
prices & markets, BUT cannot examine wider economy.
 Since 2000, especially following enlargement, Pillar 2
funds and impacts are increasingly significant
 CAPRI-RD: extend CAPRI with regional CGE approach
to capture wider impacts, based on „RegFin‟ (Ruralia)
 SAMs built for NUTS2 regions, functional interface to
allow iterative linkage between CAPRI and CGEs: both
resolve together
 New environmental and socio-economic indicators
(better suited to measuring these CAP impacts), under
development within the modelling framework

6. Model components
 CAPMOD = agricultural supply model for EU: fixed
prices, assumes profit max, 61 production activities, 276
independent regional models. Differentiates intensive &
extensive farming; can be disaggregated by farm type
 globMarket = global multi-commodity market model for 40
world regions, giving price feedback
 RegCGE = in each region, a computable CGE represents
regional economy in aggregate: 11 production sectors,
consumer (household), government. Can model
investment aids & wider economy impacts from Pillar 2,
feed labour & capital prices back to CAPMOD
 Linkage between all components to enable iterative
resolution

7. Model interactions
Economy:
Labour price
Capital price
Input prices
CAPMOD RegCge
Agriculture:
Production
Input use
Price index
Land rent

8. Challenge: how to model Pillar 2 impacts?
RD actions Explanation Measures 2007-13
humCapAgr "Investment in human capital in agriculture" (training, advice, KE, 111, 114, 115, 124,
farm relief, etc.) 133, 142, 143
humCapRest "Investments in human capital in other sectors" (training for non- 331, 341, 411, 412,
farmers/foresters, LEADER, technical assistance) 413, 421, 431, 511,
InvAgr "Increase capital stock in agriculture" (farm investments, 121, 112, 131, 141,
agricultural infrastructure, set-up aid for young farmers) 144
demGovCns "Increase government demand for construction" (basic rural 321, 322, 323*
services, village renewal, conserving rural heritage)
capAgrFor "Capital subsidies to agriculture and forestry" (i.e. those 122, 125, 126
investments which cannot be separated, between these sectors)
capFop "Capital subsidies to food processing" (adding value) 123
incSub "Income transfers to households" (early retirement, food quality 113, 132
schemes)
agriEnv "Agri-environmental measures" (for land management & non- 214, 215, 216*
productive capital, costs should only cover income forgone)
landSubAgr "Land subsidies to agriculture" (LFA and Natura 2000) 211, 212, 213*
landSubFor "Land subsidies to forestry" (land-based, forestry environment 221, 222, 223, 224,
payments) 225, 226*, 227
subsServ "Production subsidies to services" (tourism, micro-business, non- 311, 312, 313
agricultural diversification of the rural economy)

9. Result 1: Land use changes
Grassland Arable land
Red: <-1%
Yellow: no change
Green: >+1%

10. Cattle herds and suckler cows
All cattle Suckler cows

11. Agricultural incomes (% to baseline)

12. Nitrate surplus (total, % to baseline)
Baseline – I. Pérez Domínguez

13. Comparing with Pillar 1 greening results: which looks better?
Feature Greening with Pillar 1 (Britz et al scenario) Greening with Pillar 2 (our scenario)
Suckler cows Stock numbers fall Mainly decoupling Stock numbers fall Decoupling effect
c.4% drop for effect for EU27 <2% + pillar 2
EU27 ‘recoupling’
Land use change Grass + 1% Arable Mainly grassland Declines 0.7%, Fewer subsidies to
-0.5% UAA ~0% retention and EFA equal for crops & land
conditions grass
Farm Incomes Increase by around Combined effect Down by 2.5%, but 8% Budget cut
2% (NB no budget cut) EU12 up effect
Nutrients Very small N Combined effect Small reductions Due to less
reductions production
Soil erosion Negligible impacts Not measured
Biodiversity Slightly positive Combined effect Not measured
impacts,
landscape No impact Not measured
GHG Small decline Small decline
Farm labour Falls a little 0.7% rise Switch from land
overall, falls in to labour &capital
north
GDP Not measured Decrease? Tiny!

14. Points for discussion
 Are the results plausible? What do they imply about
policy choices?
 How far do model assumptions constrain results? Is
this distorting the policy value of the work?
 What improvements are worthwhile?
 If we don‟t improve, what alternatives are there?
- Thank you!