Change in Farm Production Structure Within Different CAP Schemes – an LP Modelling Approach

Abstract

After accession to European Union in 2004 direct payments became veryimportant income source also for farmers in Slovenia. But agricultural policy inplace at accession changed significantly in year 2007 as result of CAP reformimplementation. The objective of this study was to evaluate decision makingimpacts of direct payments scheme implemented with the reform: regional or morelikely hybrid scheme. The change in farm production structure was simulated withmodel, applying gross margin maximisation, based on static linear programmingapproach. The model has been developed in a spreadsheet framework in MS Excelplatform. A hypothetical farm has been chosen to analyse different scenarios andspecializations. Focus of the analysis was on cattle sector, since it is expected thatdecoupling is going to have significant influence on its optimal productionstructure. The reason is high level of direct payments that could in pre-reformscheme rise up to 70 % of total gross margin. Model results confirm that the reformshould have unfavourable impacts on cattle farms with intensive productionpractice. The results show that hybrid scheme has minor negative impacts in allcattle specializations, while regional scheme would be better option for sheepspecialized farm. Analysis has also shown growing importance of CAP pillar IIpayments, among them particularly agri-environmental measures. In all threeschemes budgetary payments enable farmers to improve financial results and inboth reform schemes they alleviate economic impacts of the CAP reform.

Keywords

• CAP reform
• optimal farm structure
• linear programming