IV The Impact of CAP Reform on the Agro-Food Industry

Scenar 2020-II: Decomposition analysis to understand policy impacts on agricultural primary production and related processing sectors

Peter Nowicki and Hans van Meijl1

This analysis, using a suite of models and statistical methods, decomposes the individual effects of various policy components on the outcome of three policy scenarios developed as part of the Scenar 2020-II study: a reference scenario, a conservative scenario, and a liberalisation scenario. A brief description of the economic modelling framework, policy representation and scenarios is presented, followed by an analysis of the impact of border measures, of the blending requirements of the EU Renewable Energy Directive, and of Pillar 1 and Pillar 2 payments of the Common Agricultural Policy on agri-food trade, agri-food production and land use. The decomposition analysis helps to identify the elements that drive the effects of policy reform.

Scenar 2020-II2 is a scenario study that compares plausible alternative policy pathways over the long term — that is, for a policy framework — and in our case this means referring to the horizon of 2020. The point is to understand the different trajectories of agriculture and the rural economy at the ground level under the influence of two contrasting policy lines in relation to a business as usual projection of policy implementation (e.g. the removal of milk quotas is scheduled for 2015, and the mandated share for biofuel mixing in transportation fuel gradually increases to 10% by 2020 following the implementation of the Renewable Energy Directive, etc.). The two contrasting scenarios are complete liberalization of the agricultural economy, on the one hand, and a conservative approach of maintaining regional agricultural production structures in place, on the other.

The importance of understanding what happens on the ground means that a variety of interconnected factors have to be taken into account at the same time. The Scenar study tries to do this by a dual approach: a combination of economic models and a SWOT analysis of regionalized factors relating to the economic, social and physical environment. The economic modelling included a global trade model (LEITAP), a partial equilibrium model specialised in the agricultural economy at the EU member state level (ESIM), and a partial equilibrium model specialised in agricultural activities at the EU NUTS 2 regional level (CAPRI). The SWOT analysis used statistical references, land cover data and the outcomes of the economic modelling (providing projections up to 2020), along with expert information.

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