Structural, efficiency and income effects of direct payments An agent-based analysis of alternative payment schemes for the German region Hohenlohe

The paper analyses various forms of direct payments using the spatial and dynamic model AgriPoliS. In AgriPoliS farms are represented as agents which act and interact individually. This allows for endogenous structural change. The model is fitted to the agricultural region 'Hohenlohe' in Baden-Württemberg which is characterised by intensive livestock farming. The policy simulations show that the fixing of a single income payment and coupling it to the farming of land – as it has been proposed by the EU Commission in the mid-term review – does not have significant effects on structural change, competitiveness, and income as compared to the current Agenda 2000 policy. In order to reach a significant and lasting effect on the competitiveness of agriculture, a further decoupling of payments would be necessary, in which direct payments would be completely decoupled from land and farming. Direct payments should rather be offered to farmers or farms, independent of whether or not farming is continued. Furthermore, area payments should be decreased to an extent which is just necessary to maintain certain land management standards. Such a policy would also break with the effect that a large part of subsidies and direct payments is transferred to the land owners rather than to the farmers. It is especially the farms with a growth potential and a high share of leased land which would benefit from such a policy.