Decoupling direct payments in North Macedonia

Weber, R.; Díaz González, A.M.; Morales Opazo, C.;

Decoupling direct payments in North Macedonia

Impacts on farmer income

Year of publication 2023

Place of publication Rome, Italy ;

Pages 54 p.

Author Weber, R.; Díaz González, A.M.; Morales Opazo, C.;

Publisher FAO ;

Product type Book (series)

ISBN 978-92-5-137780-2

Series title FAO Agricultural Development Economics Working Paper

Series number No. 23-03

Full item page

Synopsis (short abstract) North Macedonia’s ambition to join the European Union requires reforms of the agricultural sector and subsidy system. One major reform is the alignment to the rules of the Common Agricultural Policy (CAP) of the European Union on direct payments, including the “decoupling” of direct payments from production quantities. The decoupling of direct payments is likely to have significant impacts on production decisions, prices and therefore on farmer income. This paper identifies four possible scenarios for North Macedonia to align the direct payment scheme to the regulations of the European Union and subsequently analyses the impact of each scenario on farmer income, using an ex ante analysis method in the form of a static microsimulation approach and the farm accountancy data network (FADN) data at individual farm level. The results show that, on average, farmer income increases when direct payments are decoupled in North Macedonia. We further test for heterogeneity and identify different effects along farm types and economic farm size – and find that some farmers would exhibit income losses as a result of the reform (i.e. specialist cattle, mixed crops and livestock farmers). The document was developed as a key deliverable in the context of TCP/MCD/3703 “Strengthening of Agriculture and Rural Development Policy Analysis and Programming”.

The findings of this working paper have been summarized in the policy brief Farmer income and decoupled direct payments in North Macedonia

Cite this content as:

Weber, R., Díaz González, A.M. & Morales Opazo, C. 2023. Decoupling direct payments in North Macedonia – Impacts on farmer income. Agricultural Development Economics Working Paper, 23-03. Rome, FAO.

https://doi.org/10.4060/cc5148en

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Language English

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Farmer income and decoupled direct payments in North Macedonia 2023

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This policy brief summarizes the key findings and policy recommendations of the corresponding working paper “Decoupling direct payments in North Macedonia: impacts on farmer income”. North Macedonia’s ambition to join the European Union requires reforms of the agricultural sector and subsidy system. One major reform is the alignment to the rules of the Common Agricultural Policy (CAP) of the European Union on direct payments, including the “decoupling” of direct payments from production quantities. The decoupling of direct payments is likely to have significant impacts on production decisions, prices and therefore on farmer income. This paper identifies four possible scenarios for North Macedonia to align the direct payment scheme to the regulations of the European Union and subsequently analyses the impact of each scenario on farmers' income, using an ex ante analysis method in the form of a static microsimulation approach and the farm accountancy data network (FADN) data at individual farm level. The results show that, on average, farmer income increases when direct payments are decoupled in North Macedonia. We further test for heterogeneity and identify different effects along farm types and economic farm size – and find that some farmers would exhibit income losses as a result of the reform (i.e. specialist cattle, mixed crops and livestock farmers).
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North Macedonia’s ambition to join the European Union (EU) makes it necessary to reform the agricultural sector, such that it aligns with the EU Common Agricultural Policy (CAP). This involves the “decoupling” of farm subsidies, i.e. a shift to payments that are not linked to area and production levels of specific commodities, livestock numbers, and input use. The decoupling of direct payments has significant impacts on production decisions, prices and therefore on farmer’s income. The study underlying this policy brief identifies five possible scenarios for North Macedonia to align their direct payment scheme with EU regulations and analyses the impact on farmer’s income. The results show that on average farmer’s income increases through the decoupling of direct payments in North Macedonia, with small farmers having a positive effect on income while bigger farmers experience a negative impact. To allow for a smooth alignment with the CAP in North Macedonia, a gradual phase-in of direct payments measures is recommended.
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