Kappung der Direktzahlungen: Noch ein Papiertiger?

summary Capping Direct Payments in the CAP: Another Paper Tiger? One of the goals set by the European Commission while preparing the upcoming reform of the CAP is to reach a more equitable distribution of direct payments between Member States. Direct payments should also be more justifiable in the eyes of taxpayers. In its proposal published in October 2011, the EC suggests dividing direct payments into a basic and a greening component. The basic component should be subject to so‐called capping, a mechanism that applies progressive cuts in the basic payment and introduces a ceiling at €300,000. However, salaries could be subtracted before capping. It is expected that regions will suffer most where large field crop farms are predominant. Therefore, simulation experiments are implemented to assess farms’ reactions to capping in an East German large‐scale farming region. Results show that only a few farms are affected by capping and even fewer farms undergo substantial losses in both profit and size. Farms potentially affected by capping rather adapt by investing in labour‐intensive production. However, farm growth is hindered in farms affected by capping, whereas at the same time small farms do not benefit either. In the long‐term, capping potentially leads to structural inefficiencies and competitive distortions that may cause higher welfare losses than those gained with the reduction of direct payments.