CAP Reform and Its Impact on Structural Change and Productivity Growth: A Cross Country Analysis

The decoupling of direct payments from production, introduced in the recent reform of the Common Agricultural Policy (CAP) is expected to make production decisions more market-oriented and farmers more productive. However, ex-post analyses of the productivity of farms have yet to uncover any evidence of a positive impact of the decoupling policy on farm productivity. Using Irish, Danish and Dutch farm level data, we identify whether the decoupling policy has contributed to productivity growth in agriculture and to what extent enterprise switching and specialisation are important productivity improving mechanisms. We find some evidence that the decoupling policy and related farm enterprise specialisation had significant positive effects on farm productivity.