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Abstract

The distorting effect of agricultural subsidies on production decisions has been a major topic of debate in agricultural policy analysis for several decades. In light of the 2003 and the 2013 Common Agricultural Policy (CAP) reforms in the EU which delinked payments from current production, this paper examines the impact of decoupled payments on farm production in Northern Ireland using a farm-level panel dataset for the 2008 – 2016 period. An instrumental variable fixed effect model is employed, which allows important sources of endogeneity to be controlled for. Empirical results reveal that decoupled payments had significant positive effects on production outcomes but with differential impacts across sectors. The findings suggest that decoupled payments still maintain a significant effect on agricultural production. One likely explanation for this is that farmers may still be using decoupled payments to partly subsidise unprofitable farm production.

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