Structural, efficiency and income effects of direct payments: an analysis of different payment schemes for the German region 'Hohenlohe'

The objective of this paper is to work out some fundamental dynamic effects on agricultural structure, farm incomes, and efficiency that result from decoupled income payments, the transfer of payments together with a progressive payment cut. To do so, we apply the agent-based model AgriPoliS (Agri-cultural Policy Simulator). AgriPoliS is a normative spatial and dynamic model of regional agricul-tural structures that takes account of actions and interactions between a large number of individually acting farms. The model is calibrated to the region 'Hohenlohe' in Baden-Württemberg which is char-acterised by intensive livestock farming on the plains and extensive cattle and dairy farming in more remote valleys. The policy simulations show that impacts on structural change, competitiveness, and income distribution vary greatly depending on how the policy scheme is implemented. If direct pay-ments are completely decoupled from land use (no obligation to farm land) this has significant and lasting effects on the competitiveness of agriculture, structural change, farmers’ incomes and land-use.