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Abstract
In the Uruguay Round Agreement on Agriculture, so-called ‘blue box’ support
measures were exempted from reduction commitments, provided they were delivered
under ‘production-limiting’ programs. Although classified as ‘blue box’, the
EU system of direct payments (DP) to beef farmers imposes ‘claim-limiting’
restrictions rather than ‘production-limiting’ restrictions, allowing farmers to keep additional animals over and above the number upon which they are eligible to
claim DP. The present paper provides empirical evidence that EU direct payments
capitalise into the market prices of male calves and young steers in Ireland. It is
also likely that DP capitalises into the prices of beef cows and heifers. Given this
capitalisation process, some farmers can obtain ‘capitalised’ DP on animals produced
over and above the ‘claim-limiting’ restrictions, by selling these animals
through auction markets. Thus, ‘capitalised’ DP probably encourages production
over and above the limiting measures.