Study on the Functioning of Land Markets in the EU Member States under the Influence of Measures Applied under the Common Agricultural Policy

The background to this study is the establishment of the Single Payment Scheme (SPS), providing decoupled support to farmers, which was the central element of the 2003 CAP reform. The Member States of the EU-15 had to implement the SPS at the latest by 2007. The Member States had some flexibility concerning the model of implementation. Member States could opt to apply payment entitlements based on historical individual reference amounts (the ‘historical model’), or alternatively, payment entitlements calculated as averages of the historical reference amounts of the region concerned (the ‘regional model’) or a mix of the two approaches, either static or dynamic (the ‘hybrid model’).

Economic theory, as well as empirical findings, suggest that the way in which agricultural support is provided has an influence on land markets, because payments capitalise to some degree into land values, affecting both the sale and rental price of land. This would also have effects on the transfer efficiency of support, on structural change, etc. However, the type of agricultural support is not the only factor influencing land markets. Profitability of production, user competition (driven by environmental concerns and demographic changes), ownership and production structures and the institutional setting of land markets are other factors that need to be taken into account. Many of these conditions differ greatly between and within the EU Member States.

The overall objective of the study is to investigate whether and to which degree the different means of implementation of the SPS have affected:

(i) capitalisation of support into land values (sales and rental prices);

(ii) the distribution of this capitalisation to the different owners;

(iii) the effect of the SPS, in combination with the institutional setting of land markets, on structural change in agriculture; and

(iv) the reaction of land markets and asset values to changes in policy.

In contrast to previous simulation exercises, the main focus of this study is to provide an empirical underpinning of policy influences on the land market.