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In Figure 17 the percentage change in the production structure relative to the base year 2004 is displayed. At first glance one could observe a decrease in the group of ruminants since the introduction of SPS. However, at least for cattle and dairy, this reflects the general trend and would mean that SPS did not exacerbate the decrease as one would expect because of the redistribution of payments away from intensive dairy and cattle farms (already at the beginning of the reform). The situation seems to be different for sheep production, where the level of production stays relatively constant between 1999 and 2004, when production decreased about 5 % after the introduction of SPS.

To interpret the results we must also consider the characteristics of the dynamic hybrid model, which entails only a small redistribution of payments at the beginning but a strong redistribution at the end of the reform. In between we have a period where the farms are able to stepwise adjust to the situation. Accordingly, although we could not observe an effect on the aggregate level, regional experts judge the situation slightly different. In all regions the highest impact was observed for bull fattening, suckler cow and sheep farming depending on the extent of the region’s production.

Lioudmila Möller et al.

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Source: Own illustration based on STATISTISCHES JAHRBUCH Für E. L. F. (1999-2007).

In order to judge the production structure’s development since introducing SPS, farm profits have to be considered. In Figure 19 the relative development of farm profits according to farm type is displayed. Here we can observe that dairy farms could increase their profits the most. This is caused by the strong increase in milk prices since 2005. This increase is in contrast to most projections, which assumed decreasing milk prices due to milk market reforms. With increased milk prices farms are able to compensate the distributional effects of SPS. As the price level was very low in 2004, most projections assumed that already small losses for dairy farms would lead to significant effects as there is almost no space for farms to adapt. Results from expert interviews showed that SPS has little impact on farm income.

Experts stated that there are no or slightly positive effects on arable farms. On dairy farms the estimated effect depends on whether the farm operates with a high share of natural grazing land. In the latter case, income effects are estimated positively, otherwise at zero or slightly negative.

Figure 19: Percentage development of farm profits according to the production structure Percentual change, base year 2004 (%)

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Source: Own illustration based on STATISTISCHES JAHRBUCH Für E. L. F. (1999-2007).

Regarding employment in agriculture, almost 90 % of the interviewed experts stated that the introduction of SPS has no effect. Only one of the interviewed experts in Saxony said that the Impact of the introduction of decoupled payments on functioning of the German land market 47 SPS has a weak negative impact on the labour employment. On an aggregate level this could be confirmed by the data. In Figure 20 the development of labour forces in agriculture is displayed. Obviously there is no break since the introduction of SPS; instead the general trend of a reduction of labour forces in agriculture is prolonged.

Figure 20: Development of labour forces in agriculture Persons (1000)

–  –  –

Source: Own illustration based on STATISTISCHES JAHRBUCH Für E. L. F. (1999-2007).

Besides the discussion of these general indicators, we carried out a qualitative analysis on a number of other relevant issues regarding the current and future effect of the reform. As agricultural production is very capital-intensive, we asked if the introduction of SPS affected credit constrains and the use of payment entitlements as collateral. On average, the SPS has slightly positive effects on credit access in all regions, while 70 % (19 of 27) of those questioned answered that there are no effects. In Germany it is common practice to use the direct payments a farm receives as collateral for short-term credits. This practice has not changed after the reform, though it is quite uncommon to use the net present value of an entitlement as collateral, as one would perhaps expect. One interviewed expert in Saxony even responded that the SPS might have negative effects on creditworthiness, since due to CC-controls payments are more risky.


Along with "financial discipline" – the rules which provide for automatic subsidy cuts in order to prevent total spending on the CAP exceeding pre-set budget ceilings – the CAP assigns a gradual reduction in SFP (known as "modulation") during the period of 2005-2012. Available funds deducted at source by modulation will be transferred over to rural development budgets27. Modulation of payments is 3 % in 2005, 4 % in 2006, and 5 % in 2007-2012. The first €5,000 of direct payments received by claimants are exempt from modulation.

Central point of interest of this section is to investigate the effects of changes in SFP on land value. For this purpose, trends of per hectare land values measured in land sales prices and land rents are useful to identify any changes in land value since the implementation of SFP in 2005.

–  –  –


The positive trend of average rents for agricultural land is mostly determined by increasing rents for arable land. In the time from 1991 to 2007, rents for arable land continued to rise, while for grassland the upward trend stared from 1999. Since 2003, these positive trends of rents for arable and grassland flattened. Since the implementation of SFP in 2005, no change in the general trend could be observed. Based on this development of land rents, the correlation between the changes in SFP and land rents is not evident. For the most part, this is due to the long-term rental contract (with an average duration of 10-12 years). In regard to the newly closed rental contracts however, experts questioned in interviews estimated that rents for newly rented areas are significantly higher than average rents for the currently existing rental contracts. Although these qualitative data suggest that expectations for rent rise have been raised, there is still no evidence for any effect of changes in SFP on current or expected land value.

Historical and recent development of the land sales market also supports this conclusion.

Figure 22: Trends in land sales prices and the total number of sales transactions (1991-2006)

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40.0 35.0 30.0 25.0 20.0 15.0 4000 10.0 2000 5.0 0 0.0

–  –  –


The figure above shows that in a long term view, trend of land sales prices is negative. The slight upward price development from 2000 to 2004 flattened again in the last three years.

For 2007 it is estimated that farmland prices continue to pause. The total number of land sales transactions demonstrates an inverse trend as compared to the development of land prices in Impact of the introduction of decoupled payments on functioning of the German land market 49 the last 17 years. At the same time, this trend shows a rising demand for agricultural land starting from 2003.

Based on the statistical trends, it could be concluded that land value, in terms of land sales prices and land rents, is not affected by changes in SFP. Qualitative assessments, collected by expert surveys, suggest that the implementation of the SFP initially resulted in uncertainty on the land market, but did not entail any discernible effect on land value. However, experts also emphasized that the impact of changes in SFP could be neither isolated nor estimated at the moment.


The agricultural reform of 2003 is designed to encourage farmers to adjust their production to market needs and to promote more sustainable farming practices. These aims should be achieved by decoupling of direct payments from production and by farmers’ compliance with environmental practices as a precondition for claiming direct payments. In this regard, the present empirical study produced the following conclusions and recommendations.

The effect of the introduction of SPS on land values is estimated as being very low. As there is a shortage of eligible area in relation to premium entitlements, land values should remain constant in relation to the market values for premium entitlements. In line with this argumentation, and due to the introduction of entitlements for natural grassland, an increase of rental prices for grassland could be observed in 2007.

The structural composition of agricultural sector was not affected by changes in the agricultural policy. The upward trend in average farm size is expected to continue, but it cannot be traced back to the influences of the agricultural policy.

Regarding the distributional effects of SPS, only in regions with extensively used natural grassland do farmers benefit from decoupled payments. Conversely, decoupled payments are rather disadvantageous for regions with intensive dairy or cattle production with a low share of natural grassland.

Based on the statistical trends and qualitative data, it can be concluded that land value, in terms of land sales prices and land rents, is not affected by changes in SFP.

Despite some new trends in development of land prices and rents, the total net impact of the CAP reform on land value is not clear at the moment.

No significant influence on land value can also be stated with regard to cross compliance measures. According to the expert surveys, new policy conditions are still not sufficiently communicated to farmers. Thus, the tools used by the farm advisory system must be more adjusted to the information need of farmers.

Lioudmila Möller et al.


ASE (2003): Agrarstrukturerhebung. Statistisches Bundesamt.

BALMANN, A. (1999): "Path dependence and the structural development of family farm dominated regions", IX. European Conference of Agricultural Economists; Organised Session Papers, Warsaw/Poland, pp. 263-284.

BAUERNVERBAND (2004a): Pressemitteilung, Sonnleitner: Tierhalter werden durch Kombimodell zum Verlierer der Reform, www.bauernverband.de/?redid=159127.

BAUERNVERBAND (2004b): Pressemitteilung, Sonnleitner: Agrarreformgesetz ist ungerecht und leistungsfeindlich, www.bauernverband.de/?redid=158954.

BAUERNVERBAND (2008): Situationsbericht 2008. www.bauernverband.de/?redid=200712 or:


BAYSTMLF (Bayerisches Staatsministerium für Landwirtschaft und Forsten) (2004): Betriebsprämie im Rahmen der GAP-Reform; Antragsberechtigung von Neu-/Wiederantragstellern; Beihilfefähigkeit erstmalig beantragter Flächen; München: p. 6.

BAYSTMLF (Bayerisches Staatsministerium für Landwirtschaft und Forsten) (2005): Bearbeitungshinweise Härtefälle/Betriebsinhaber in besonderer Lage (Fortschreibung durch die Clearingstelle zum LMS vom 24.03.05 Nr. B4-7298.4-93/Stand: 13.06.2005), München, p. 30.

BAYSTMLF (Bayerisches Staatsministerium für Landwirtschaft und Forsten) (2006): Bayerischer Agrarbericht 2006.

BERICHT DER BUNDESREGIERUNG ZUR DEUTSCHEN EINHEIT, Drucksache 12/6854 [German Government Report on German Reunification].

BMELV (2005a): Meilensteine der Agrarpolitik. www.bmelv.de/cln_044/nn_751434/SharedDocs/ downloads/04-Landwirtschaft/Foerderung/Direktzahlungen/BroschuereMeilensteineAgrarpolitik, templateId=raw,property=publicationFile.pdf/BroschuereMeilensteineAgrarpolitik.pdf.

BMELV (2005b): Key Elements of the Agreement on the Reform of the Common Agricultural Policy (CAP) and its Implementation in Germany. www.bmelv.de/cln_044/nn_757134/ SharedDocs/downloads/__EN/05-Agriculture/KeyElementsCommonAgriculturalPolicy,templateId=raw, property=publicationFile.pdf/KeyElementsCommonAgriculturalPolicy.pdf.

BMELV (2006a): Die EU-Agrarreform – Umsetzung in Deutschland. www.bmelv.de/nn_750578/ SharedDocs/downloads/01-Broschueren/eu-agrarreform2006,templateId=raw,property=publicationFile.


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