Distributional effects and structural change induced by various CAP Pillar 1 proposals; the case of the Czech Republic

This paper deals with the potential effects of the CAP pillar 1 on farm incomes and structural changes. It uses a dynamic Computable General Equilibrium model and a specific analysis on distributional effects. The effect of payments ceiling in the current CAP 2020 proposal with subtracting labour costs will bring only insignificant payment reduction for most farmers except large extensive beef breeders whose direct payments will drop by 13% on average. However, if the condition on labour costs is removed, capping will become effective, payments in some specialisations will drop to half and the production and employment will decline by 6% and 10%, respectively, compared to the current situation. It is showed that small farm measures could easily miss its goal if there is no possibility to adjust the threshold measure more respecting national conditions. Analogously, due to prevalence of large corporate farms on land it is very unlikely that the measure targeted on young farmers will significantly reduce an ageing problem. Regarding greening, the current proposal will induce additional operating costs on farms between 4 and 10 hectares without adequate environmental improvements. We conclude that more flexibility at the national level for respecting national farm structure will be needed if the good intentions of CAP reform are to be effective and efficient.