The methodology of the EU Commission to evaluate the impact of direct payments

The legislator of the European Union (EU) has commissioned the European Commission (EC) to evaluate Pillar 1 measures of the Common Agricultural Policy (CAP), particularly direct income payments. The legislator has laid out the policy objectives and has instructed the EC to specify the impact indicators for the evaluation. This policy brief argues that the EC had to accept the task, which could not be solved with the state-of-the-art methodology generally followed by professional economists. However, the objectives have not been clearly defined by the legislator, and the EC has failed to suggest a clear definition of objectives to measure the expected positive changes resulting from the policy intervention. Moreover, the approach of the EC does not solve the identification problem; it failed to compare the situation with and without direct payments. Thus, the EC is unable to justify the need for direct payments based on its diagnosis and to show that the measure is effective and efficient. The EC uses so-called impact indicators in line with the proposal of the legislator. Specific indicators have been selected to relate to specific objectives (e. g., changes in entrepreneurial income are considered to contribute to the change in the objective 'variable production'). This article argues that this relationship has to be challenged. The same conclusion holds for the impact indicator 'factor income'. The impact indicators used by the EC provide no information about the direct impact on the specific objective variables. Moreover, the EC approach only focuses on potential benefits, and competely neglects economic costs.