Destabilising Farmers' Revenues by Shifting to Direct Payments? The Case of EU's Common Agricultural Policy

This paper quantifies the effects of EU's Common Agricultural Policy (CAP) on the instability of domestic farmers' revenues during the period 1986 to 2004. Comparing explicitly the situations with and without policy shows that CAP transfers have lowered the variability of revenues for major commodities through time. The decomposition of agricultural support allows to reveal the impacts of single instruments on instability and indicates that arable area and beef headage payments, introduced in the 1990s, tend to stabilise domestic farmers' revenues. With market price support, however, farmers' revenues are more stable.