Policy incentives as behavioural drivers of beef enterprises in Ireland: where are the kinks?

The current structure of agricultural production is still influenced by historical coupled payments, even though it has been eight years since decoupled payments were introduced. Much of the expansion in the Irish cattle herd that occurred during the era of the MacSharry reforms is still visible. In this paper we consider the incentives associated with the Common Agricultural Policy (CAP) over time in relation to production. Our primary focus is on subsidies that were available to the beef sector, and we investigate the behavioural pressures associated with these incentives. We have developed a Hypothetical microsimulation model using a typical farm, based on plausible values taken from the Teagasc National Farm Survey (NFS) 1995. We are investigating if subsidies available to the beef sector in Ireland through the CAP since 1984 resulted in non-linearity in the Direct Payment Schedule faced by cattle farmers, and if so where were these kinks and what were the behavioural pressures associated with these incentives? Identifying non-linearity in the Direct Payment Schedule indicates where incentives occurred. Large kinks are associated with large incentives at that point. We calculated a total payment for each subsidy from 1984 to 2014, and constructed a Direct Payment Schedule that varies by stocking rate. We find that subsidies, and in particular the CAP reform payments of the MacSharry era introduced large discontinuities or kink points in the Direct Payment Schedule of beef farmers, indicating that there were large incentives for farmers to produce at or just before these points.