Calculating the rate of decoupling for crops under CAP/oilseeds reform

The model presented in this paper measures the rate of decoupling achieved by the compensatory payments package provided under 'CAP/Oilseeds Reform' legislation. Results from the model suggest that, contrary to expectations, we may view the compensatory payments as 'effectively fully decoupled' from production of wheat, rapeseed and soybeans. Three factors drive this result. First, when compared with base period returns, the compensatory payments 'skew' crop revenue per hectare. Second, the set-aside and 'Blair House accord' area restrictions on the model ensure effective full decoupling for rapeseed and soybeans. (Without these restrictions, the payments package is only partially decoupled from production of these crops.) Finally as currently designed, the model does not allow land to leave crop production; thus, if area in one crop decreases in response to changes in prices and/or payments, area in at least one other crop must increase. For coarse grains and sunflower the model generates decoupling rates of 80 per cent and 70 per cent respectively suggesting partial decoupling of the payments package from production of these crops.