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Abstract
The specific purpose of this paper is to estimate the extent to which decoupled payments
under the Single Payments Scheme (SPS) are being used (either explicitly or implicitly) in
England to support the continuation of activities that were previously supported by area and
headage payments. In the absence of a farm survey, the methodology consists of using
information on farm accounts collected through England’s Farm Business Survey (FBS), to
estimate a multi-output cost function differentiated by farm size and farm type. This cost
function, calibrated to match regional prices in England, is used to estimate the level of cross-subsidisation
in the first full year after implementation of the SPS (2005/06). Results indicate
that cross-subsidisation was occurring, which might infer that many farmers across England
are coupling their payments. Whilst, these results are for the first year, and in that sense may
reflect a transitional situation, they are nevertheless important because they provide empirical
evidence to inform the discussion concerning the impact and future development of the SPS.