Ex-Ante Analysis of the Regional Impacts of the Common Agricultural Policy: A Rural–Urban Recursive Dynamic CGE Model Approach

Abstract

A recursive dynamic regional Computable General Equilibrium model is developed to assess the economic impacts of two Common Agricultural Policy (CAP) scenarios in six NUTS-3 (Nomenclature of Territorial Units for Statistics) (NUTS-1: major socio-economic regions, NUTS-2: basic regions for the application of regional policies, NUTS-3: small regions for specific diagnoses) regions of the European Union (EU). The main goal of the analysis is to assess the scenario effects (change in production, prices, income, employment) in the rural and urban parts of these regions as well as on the different sectors. The two scenarios analysed are related to a 30% reduction in Pillar 1 (market measures and direct support to farmers) support and the introduction of an EU-wide flat rate level of Pillar 1 support complemented by a 45% increase in Pillar 2 (Rural Development Policy) funds. Results show that the overall gross domestic product effects are not significant, due to the relatively low importance of both the agricultural sector and CAP spending in the regional economies. However, impacts on the agricultural sector are quite important and differ according to the nature of the policy shock. Also, the structural characteristics of each case study influence the rural–urban and sectoral spillovers, including impacts on region-specific agricultural activity.

Notes

1. TERA-SIAP typology classifies regions according to the actual and the potential diversification.

2. The OECD typology classifies regions according to the degree of rurality and peripherality.

3. Full details of the selection procedure are available in chapter 2 (Psaltopoulos et al., 2012).

4. The acronyms of the case study regions presented in Table 1 will be used along the text.

5. Full details of the six SAMs and choice of trends values are available from the authors on request or can be consulted in Psaltopoulos et al. (2012).

6. The CAP budget commitment for 2014 and 2020 respectively is 55.9 and for 50.2 (in billion euros in constant prices). The Commission proposal specifies the amounts of 281.8Є bn (compared to 301.1Є bn for 2007–2013) and of 89.9Є bn (compared to 96.2Є bn for the period 2007–2013) for Pillars 1 and 2, respectively.

7. In the Czech case study, direct payments (including national top-ups) are gradually increased and reach their 100% level in 2013.

8. This research is embedded in the project “RURAL EC-MOD” where other scenarios (more devoted to the assessment of Pillar 2 measures) were specified and therefore a partial equilibrium model was not suitable.