Capping direct payments – a modest proposal

DG AGRI has published its latest breakdown of the distribution of direct payments in financial year (FY) 2017, which refers to payments made to farmers in the claim year (CY) 2016. The report itself has less text than usual, but lots of graphs showing the distributions of payments and recipients for the EU28 and by country. The detailed tables showing the numbers behind these graphs are given in the statistical annex.

A couple of points are worth remarking. The tables distinguish between the distribution of decoupled payments, other direct payments and total direct payments. The decoupled payments include the basic payment, greening payment, redistributive payment, young farmers’ payment, and the payment to areas facing natural constraints in Pillar 1.

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Climate policy in agriculture and carbon leakage

Efforts to reduce greenhouse gas emissions in a single country will usually lead to increased emissions in other countries – a phenomenon called carbon leakage (for simplicity, I will use the term carbon leakage although the same outcome also applies to other greenhouse gases). Various mechanisms contribute to this effect:

  • If climate policy increases production costs, this will reduce the competitiveness of domestic production relative to countries without or with a laxer climate policy. Consumers will shift their purchasing to the cheaper imported alternatives. The effect will be that some emissions-producing production will shift to third countries with the laxer climate policy – the competitiveness channel.
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