EU-Wide Impacts of the 2013 CAP Direct Payments Reform: A Farm-Level Analysis

This paper analyzes the microeconomic effects of the 2013 reform of the EU's Common Agricultural Policy (CAP). This is done using the EU-wide individual farm model (IFM-CAP). Simulation results show that although the reform succeeded to partially harmonize direct payments (DP) among farms and Member States, relatively strong differences in the distribution still remain in place. Around 62% of the farms increase their income, whereas the remaining 38% lose from the reform. The reform benefits small farms, while large farms lose out. As measured by the Gini coefficient, the 2013-CAP reform only partially reduces the disparity in the distribution of DP and farm income among farms. The Gini decomposition shows that subsidies (in particular decoupled payments) contribute to a decrease in the inequality of total farm income. The future CAP reform needs to have a stronger overhaul of the DP system in order to achieve a substantial reduction in inequality in the distribution of payments among farms and regions in EU.