The Estimation of Policy Impacts on Farms

End of Project Report The purpose of this project is to examine the impact of the Berlin agreement on EU agricultural policy reform at farm level and to estimate how farmers are likely to respond to new policy changes. Eight Representative farms in the cattle and dairy sectors are developed in order to analyse the different sectors of the farming community. Linear programming models are constructed to estimate how these farmers are likely to respond to the changing policy. Estimates of farm income are also produced. The impact of Agenda 2000 on these representative farms was analysed. The key findings showed that all farms will be subjected to a price-cost squeeze over the next ten years. By responding to policy changes farmers will be able to maintain farm net margins and in some cases increase them modestly. The key to success for dairy farmers is expansion of milk quota. Purchasing of currently leased quota and additional quota, where possible, allows larger dairy farms to maintain profits. However, smaller dairy farms, 20,000 gallons of quota or less, are pushed and pulled out of farming. Rising production costs, static milk prices and unaffordable quota push them out, while attractive sale prices for quota and potentially high off farm incomes pull them out of dairy farming. In relation to cattle farming, results show that the key to success is the maximisation of direct payments. Small and part-time farms will find extensification schemes increasingly more profitable over the coming years. While larger farms can expand operations following the changes in premia limits set out in Agenda 2000. Off farm employment will continue to be a major issue for cattle farmers to consider. It is projected however, that margins can be maintained at a sufficiently high level on large cattle farms to keep them in business.