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Decoupling Agricultural Policies in CGE Models: Theory and Empirics

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  • Ferrari, Emanuele
  • Boulanger, Pierre
  • Gonzalez–Mellado, Aida
  • McDonald, Scott

Abstract

The Common Agricultural Policy (CAP) is moving away from8 coupled payments towards an increasing emphasis on decoupled payments. However current CGE models to study effects of decoupled payments remain limited. This paper introduces the application of a CGE model framework for a comparative analysis of possible effects caused by coupled and decoupled support on agricultural and food sectors in an economy. The CGE model used is the STAGE_AGR which is an extension of the STAGE model containing equations that permit modellers to introduce agricultural policy instruments either as coupled or decoupled. We have taken as empirical example the case of Ireland. We start with the updating of the Irish SAM according to the economic conditions of 2007. The data base is presented with a high degree of disaggregation including 30 raw agricultural sectors and 12 processed food sectors. It contains most of the CAP payments in Ireland for the year 2007. In the simulations we assume cuts in the CAP budget. In one scenario most of the CAP payments (except export refunds and LFA) are treated as decoupled while in the other scenario they are treated as coupled. The results suggest that GDP and welfare would experience positive development under both assumptions despite the drop in returns of all primary factors employed in agricultural and food sectors. Results quantify the higher distortive nature of coupled payments by contrast to decoupled payments.

Suggested Citation

  • Ferrari, Emanuele & Boulanger, Pierre & Gonzalez–Mellado, Aida & McDonald, Scott, 2012. "Decoupling Agricultural Policies in CGE Models: Theory and Empirics," Conference papers 332181, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    • Handle: RePEc:ags:pugtwp:332181
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