EU-wide distributional effects of EU Direct Payment Harmonization analyzed with CAPRI : paper prepared for presentation at the EAAE 2011 Congress "Change and Uncertainty, Challenges for Agriculture, Food and Natural Resources" ; August 30 to September 2, 2011 ; ETH Zurich, Zurich, Switzerland

In this paper we analyse distributional effects of scenarios depicting different levels of harmonisation of CAP direct payments between farms and regions in the EU. We use the CAPRI-Farm type (FT) model, an extension of CAPRI by farm type models capturing farm heterogeneity across the EU. Its main advantage in the context of our analysis is that it allows to depict in high detail the current implementation of the Single Farm Payment. We analyze three flat-rate scenarios. The first assumes a per hectare payment at Nuts1 level, the second a flat-rate at MS and the third a flat-rate at EU level. The value of re-distributed payments vary strongly between the three flat-rate systems. The Nuts1 and MS flat-rate induce a substantial relocation of payments between farms and regions in EU-15 but have a minor effect in EU-10. More significant impact has the EU flat-rate. In the EU-15 almost all farms loose, whereas in EU-10 almost all farms gain from an EU wide flat-rate. In particular big gainers in EU-10 are mixed crops-livestock, general field cropping-mixed, cereals oilseeds as well as small farms. In EU-15 large farms and farms specialised in dairying, mixed crops-livestock, general field cropping-mixed and olives loose substantially in absolute and relative terms. Our conservative estimates indicate that the flat-rate payments could redistribute up to 8.2 billion €. The rental income effects, approximated by dual effects, reveal a reduction in landowners' returns for all flat-rate scenarios and across all sectors and farm sizes. The rent change varies between -11 €/ha and -358 €/ha (-5% and -40%), depending on farm type and scenario.