Cross-Compliance policies and EU Agriculture: Missing All The Targets at the Same Time?

After the 1992 Common Agricultural Policy Reform, the idea of introducing cross-compliance into the European Union agricultural policy has become more and more popular. Cross-compliance can be defined as making income support conditional on farmers conforming to environmental regulations and standards imposed on agricultural production. From economic theory it is known that, in order to establish and efficient policy, there should be correspondence between the number of policy objectives and the number of instruments. This has been neglected in the case of European cross-compliance policies and, in order to discuss the effects of the Common Agricultural Policy and efficiency properties, a simulation model has been applied to analyze the effects of introducing environmentally related objectives concerning nitrate leaching as a supplement to the current aim of income support in the Common Agricultural Policy. Results suggest that combining output reduction and nitrate leaching reduction is less effective than separate policies for these two objectives.