The CAPRI model combines a representation of agricultural supply based on positive mathematical programming with a global trade model for agricultural commodities.5 The supply module of CAPRI covers the most important agricultural activities in EU27 at a regional level (NUTS 16 in the United Kingdom, NUTS 2 in the rest of the European Union). The supply module is able to simulate changes in farmers’ behaviour in response to a changed direct payment scheme (such as the implementation of the SPS in the European Union). The market model allows the impact on the market price of any changes in production as a response to the direct payment to be fed back to farm-gate prices. It also simultaneously allows the simulation of policy changes at the market level (export subsidies, intervention, import tariffs, tariff rate quotas). Though the core of CAPRI is well documented, it is useful to consider how the SPS is handled within the model.
The payment scheme for subsidies to farmers under the current legislation is part of the optimization procedure of CAPRI. The design of the direct payment and SPS adheres closely to the mechanisms defined by the EU regulations. The basic entity of the direct payment system in CAPRI is the premium. Each premium is associated with 1) a list of eligible agricultural activities, 2) a national or regional ceiling in monetary or physical terms, and 3) information as to how the premium amount is computed, i.e. per slaughtered head, hectare harvested, or historical or actual yield. The ceilings mentioned under 2) are used to decrease the payments if the ceilings are overshot.
For the premiums defined in the 2003 CAP reform, a special routine removes premiums that are to be decoupled, and adds a corresponding amount of money to the SPS. The payment is modelled as an amount per hectare that is invariant to the cropping choice of the producer, except for land abandonment. In CAPRI, therefore, the SPS as well as the single area payment scheme in the new member states influence land rents, but hardly affect the choice of crop mix, except for marginal land abandonment. With this implementation, the “decoupled” payments are not fully decoupled in CAPRI, but have a small general production effect. Nevertheless, the degree of coupling is small compared to the “coupled” payments, and is not crop-specific.
In effect, the SPS payment rates are computed in two steps. First, the total payment per NUTS 2 region is calculated (for the historical reference year) taking into account payment ceilings, national coupling options and the choices made regarding the implementation of the single farm payment (for example regional flat rate, hybrid model, single area payment and/or Article 69 choices). The total regional payment is then divided by the regional eligible area to obtain the average SPS amount per hectare in each region, with the total regional amount as the payment ceiling. This approach means that it is possible to capture regional differences in payment rates, if not farm-by-farm differences.
In essence, two main scenarios were compared with the CAPRI model.
- • Baseline Scenario — continuation of the current reform situation up to 2013 (i.e. with partial decoupling and Article 69).7
- • Full Decoupling Scenario — complete removal of all coupled payments including those under Article 69 and transfer of these payments to the SPS.
In order to gain a better understanding of the potential role individual countries may play, the scenarios were re-run on the assumptions that: only France decoupled; only Spain decoupled; and countries that maintained some form of coupled payments (with the exception of France and Spain) decoupled.
The results are presented in terms of changes from the baseline scenario in 2013, i.e. the differences in levels of key variables (production, prices, welfare, etc.) in 2013 between a situation where payments are fully decoupled, compared to that in which the 2003 reforms are continued.