Sectoral impact of transferring funds from CAP Pillar I to Pillar II

Introduction

Under the CAP Reform Agreement reached between the EU Council, Parliament and Commission on 26 June 2013 up to 15 per cent of funds can be transferred from Pillar I to Pillar II. These transfers are after the transfer of the hitherto compulsory modulation monies from Pillar I to Pillar II, which following the establishment of the 2014-2020 budget will be permanently part of Pillar II. This policy brief reports the impact on activity levels at the sector level in the UK of shifting additional levels of funding from Pillar I to Pillar II as specified in the 26 June 2103 CAP Reform Agreement. Specifically, we consider the impact of transfers of direct aid payments1, which in 2011 for example accounted for 91
per cent of Pillar I expenditure (Massot, 2013). The analysis is based on the FAPRI-UK partial equilibrium modelling system, which captures the dynamic interrelationships among the variables affecting supply and demand in the main agricultural sectors of England, Wales, Scotland and Northern Ireland.

In order to determine the sectoral impact of transferring funds from Pillar I to Pillar II, the scenarios are compared against a Baseline in which it is assumed that the monies from compulsory modulation are permanently transferred from Pillar I to Pillar II and that no voluntary modulation is applied2. Within the scenario analysis various reductions in Pillar I direct aid payments are applied (5%, 10%, 15% and 20%) relative to the Baseline; i.e. the transfers from Pillar I to Pillar II within the scenarios are those that occur after the reductions in Pillar I payments following the permanent transfer of compulsory modulation to Pillar II.