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For various reasons, the structure of German agriculture in terms of farm legal form, specialization, size, productivity etc. is very complex and heterogeneous. Case study regions must thus be selected in such a way as to adequately reflect this heterogeneity. The legacy of agricultural policy in former East Germany is still discernible in local farm structures and at the productivity level. The selection should therefore include regions from East Germany (with large corporate farms) and West Germany (small/medium family farms with or without livestock). It should also allow addressing issues like the influence of ownership structure and local market power on land markets. The selected regions should also reflect the prevailing production structures. The intensity of production, in particular, has a significant effect on the competitive situation in land markets as land is not only used for production but also as manure disposal area. A comparative evaluation of agricultural policies in the Old and New Laender is not an objective of the present study. However, the references to East/West differences are occasionally necessary for highlighting the specifics of German agriculture.

Though all regions share the same implementation of the Single Payment Scheme, the value and the distribution of the entitlements differ significantly across regions. This has an influence on the trade and the allocation of entitlements and of agricultural land. Since entitlements are only tradable within regions/Laender, sale prices and rents reflect the amount and quality of the available agricultural area in each region. Based on these considerations the following

regions were selected4:

Figure 2: Case study regions

–  –  –

Source: Own illustration.

For more detailed presentation of case study regions see Regional Reports in Appendix.

Impact of the introduction of decoupled payments on functioning of the German land market 19 The chosen regions encompass farms with different: (a) mode of operation (intensive/extensive production), (b) scale of farm operations (small/large farms), (c) legal form (private/corporate), and (d) specialization (field crop, livestock, mixed).


The following section describes how the single payment scheme (SPS) has been implemented in Germany. The description is based on information taken from BMELV (2006). The framework for the national implementation of the SPS is given in Council Regulation (EC) No 1782/2003, while the rules for implementation appear in Commission Regulation (EC) No 795/2004 and Commission Regulation (EC) No 796/2004. According to these acts, there is some degree of flexibility for the national implementation of the SPS regarding introduction, extent and implementation. Accordingly, the abovementioned acts were put into national law according to the "Gesetz zur Umsetzung der Reform der Gemeinsamen Agrarpolitik vom 21. Juli 2004 (BGBl I S. 1763)" and the "Bekanntmachung der Neufassung des Betriebsprämiendurchführungsgesetzes vom 26. Juli 2004 (BGBl. I S. 1868)".

In Germany, the 2003 CAP reform took place on 1st January 2005, which was the earliest possible date stipulated by the above regulations. For its implementation, Germany opted for the so-called hybrid dynamic model, which is a combination of the standard (historical model) and the regional model, i.e., one part of the direct payments is distributed according to the historical model and the other part is disbursed according to the regional model. In the historical model, the payments a given farm receives per hectare are fixed according to any payments it may have received in the past. In contrast, in the regional model, the level of payments is the same throughout the region. The hybrid part of the model means that for the period between 2010 and 2013, the historical decoupling scheme is stepwise transformed into a purely regional model.

In addition, Germany opted for a regionalised version of the hybrid dynamic model, which means that the regional component of the single farm payment SFP was fixed on a regional level. In principle, these premium regions are the same as the federal states. Three exceptions are the city states of Hamburg, Berlin and Bremen, which where assigned to the surrounding federal states, thus resulting in 13 premium regions. In 2005 a national ceiling for payment entitlements was set at €5.148 billion (Ibid). From this amount, 1 % was used to set up a national reserve5. Principally, the share for the regional ceilings could have been fixed according to the premium payments paid in a region during the reference period. However, this would have led to large differences in the values of the premium entitlements. To avoid that imbalance, 35 % of the payments were distributed according to the eligible area of a region and only 65 % according to actually received payments during the reference period. This share was chosen in a way that allows no region to lose more than 5 % of its premium payments, and at the same time the payments per hectare do not differ more than €100 between two regions.

As Germany has opted for a hybrid scheme, the payments a farm receives are comprised of two parts – a farm-specific and an acreage-based regional portion. Here, the farm-specific part results from the direct payments a farm received in the reference period between 2000 and 2002. These direct payments include the special bonus for male cattle, the slaughtering premium for claves, the suckler cow premium, the ewe premium, 50 % of the extensification bonus for cattle, the milk premium (in the second reform stage), 25 % of the starch potato premium and the decoupled part of the dry food premium (Ibid). As there were no direct payments for milk between 2000 and 2002, the reference volume of a farm on 31st March 2005 was taken as a reference (Ibid). In 2006 and 2007, the farm-specific payments were further extended.

The functioning of the national reserve is explained in section 0.

Lioudmila Möller et al.

To calculate the acreage-based (regional) part of the payments, first the sum of all farm-specific payments was added up and then subtracted from the regional ceiling. Thus, the regional part of the payment includes the direct payments for Grand cultures, seed payments, payments for grain legumes, the hops premium, 75 % of the decoupled part of the starch potato premium, the slaughtering premium for cattle, 50 % of the extensification bonus for cattle and the balance of the regional redistribution (Ibid). In order to calculate a per-hectare-value, in a second step this regional part of the payments was divided by the eligible area of a region, whereas a differentiation was made between permanent pasture and arable land (Ibid). This differentiation was based on a value ratio between arable and permanent pasture for each of the thirteen trading regions.

In order to calculate the regional part of the payments a farm receives, the eligible area of a farm was multiplied by the values per hectare of the according region and type of land. Finally, to render the SPS manageable and flexible in further years, both the farm-specific component and the regional component were transformed into so-called premium entitlements (entitlements).

Here, the amount of eligible area a farm held on a particular date (17th May 2005) determined the number of entitlements a farm received. To calculate the value of each entitlement, first the region-specific part was assigned to every entitlement depending on land type. In a second step, the farm-specific portion was distributed equally over all entitlements of a farm. This additional value is also called a top-up and is inseparably bound to the entitlement.

In 2006 and 2007, the farm-specific part of every premium entitlement was again adjusted due to the third stage of the milk reform, the partial decoupling of the tobacco premium and the first stage of compensation from the sugar market’s reform6.

In addition to the "normal" entitlements as described above, there are four other kinds of entitlements in Germany, which differ in their rules of assignment, activation and transfer. First are the "set-aside" entitlements, which are calculated in the same way as normal entitlements but can only be activated on a set-aside area. The number of set-aside entitlements was determined by multiplying the eligible area of a farm by a region-specific set-aside ratio. The second group includes the so called OGS entitlements. In contrast to the entitlements of the first group these entitlements can also be activated on land used for the cultivation of non-permanent fruits, vegetables and starch potatoes. The third group are the so called "special" entitlements. Special entitlements result from a situation when a farm received direct payments in the reference period but holds only an extremely small amount or even no eligible area in 2005 (mainly workers of larger Eastern German cooperative farms who fattened some animals on their own account). For this group of entitlement the activation is linked to the stocking and not the land.

The fourth group are entitlements from the national reserve. Here some special restrictions regarding the tradability and activation of entitlements apply.

As stated above, starting in 2010, the hybrid scheme will be transformed stepwise into a pure regional model until the year 2013. Thus, for 2009 a regional target value is calculated which equals the sum of the value of all payment entitlements divided by the number of all entitlements in 2009. At this point in time it is not possible to calculate the exact values, as some further adjustments will take place before 2009. A current estimation of the target values is given in BMELV (2007) and displayed in Table 1.

In February 2006, the common market organization’s sugar reform took place (BMELV, 2006b). A main part of this reform is the stepwise reduction of the minimum price for sugar beets. As compensation for this price decrease, a premium ceiling for the last stage of the reform was fixed for Germany with an amount of €278 million for decoupled payments. Based on the contracted amount of sugar production a farm holds with a sugar refinery or distributor in fiscal year 2006/2007, compensation was calculated and added to the payment entitlements a farm owned on 15th May 2006. This specific part of the respective entitlements will then be increased in three steps until 2010.

Impact of the introduction of decoupled payments on functioning of the German land market 21

–  –  –

Source: BMELV, 2007.


The political reasoning for the dynamic hybrid scheme is that the Ministry of agriculture prefers

a regional uniform payment over the historical model because the regional model:

a) Is a comparably simple system;

b) Fosters regions with a high share of permanent pasture and extensive land management compared to the current system;

c) Is easier to justify (BMELV, 2005).

However, to both circumvent a very high redistribution of payments and to not overstrain the adaptiveness of the farms in the beginning of the reform, a hybrid scheme was chosen which should be transformed stepwise in a pure regional model (Ibid). In contrast, the biggest farmers union (Deutscher Bauernverband) argued for a continuation of the hybrid model in favour of a transformation into a purely regional model, because the redistribution of payments would come very much at the expense of animal producing farms. One suggestion was to exclude the milk premium from this transformation (BAUERNVEBAND, 2004a, 2004b).

6.1 Eligible area in country In principle, all land which is used primarily for agricultural production and kept in "good agricultural conditions" (GAEC) can be used to activate entitlements (BMELV, 2006, 73).

Only the current use of an area is decisive for whether a plot is eligible to activate entitlements.

This means an eligible parcel need not be used for agricultural before the year of activation.

In order to be eligible, the land must be used to produce commodities, or must be mulched at least once a year, or the aboveground biomass must be cut and removed at least every second year. In addition, landscape elements, if they belong to certain categories and up to the respective specified size limit, belong to the eligible area as well (BMELV, 2006, 185)7.

Generally, the size of a landscape element must not exceed 25% of the plot.

Lioudmila Möller et al.

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