A Policy Impact Evaluation Model For Scotland: Decoupling Single Farm Payments

The purpose of this paper is to assess the impacts of decoupling single farm payments in Scotland. It focuses on aggregate impacts on the agricultural products in domestic and external markets and the spill-over effect of this on the non-agricultural sector as well as an aggregate impact on the Scottish GDP. In order to capture system-wide impacts of the policy reform, a CGE model was formulated and implemented using a social accounting matrix constructed for Scotland. The simulation results suggest that the Scottish agricultural sector may encounter declines in output and factor us as a result of the policy reform. However, this critically depends on two factors: (a) the price effect of the policy reform on Scottish agricultural products relative to the EU average as well as the conditions of changes in world agricultural market prices; and (b) the extent to which customers would be sensitive to price effects of the policy reform. As far as the spill-over effect to the non-agricultural sector is concerned, decoupling of direct payments seems to have a positive spill-over effect. Similarly, the aggregate GDP effect is positive under all simulation scenarios. Critically, the simulation experiments indicate that policy shock may have a symmetrical outcome across the two sectors, with contractions in agriculture being accompanied by expansions in the non-agricultural sector, mainly because of factor market interactions between the two sectors.