The economic, environmental and agricultural land use effects in the European Union of agricultural labour subsidies under the Common Agricultural Policy

In this study, we assessed the economic, environmental and agricultural land use impacts in the EU of a 20% reduction in the Pillar I budget of the Common Agricultural Policy (CAP) of the European Union (EU) and spending the saved money via a subsidy on labour in primary agriculture. The impact of such a policy has been assessed with a computable general equilibrium (CGE) model and a partial equilibrium (PE) model. It is concluded that reallocation of Pillar I budgets to a coupled agricultural labour subsidy increased employment in agriculture, especially in agricultural sectors and regions that are relatively labour intensive. Average employment in agriculture in the EU increased with 1.6% in the CGE model and with 0.6% in the PE model. Agricultural production and environmental emissions from agriculture increased as well. At the same time, prices of agricultural outputs decreased. Value added including subsidies increased for agricultural labour, but total value added in agriculture decreased. The latter was especially explained by decreased land prices and land-related value added. Measured in terms of equivalent variation, total welfare in the EU decreased. Welfare costs equalled about 1400 € per full-time work equivalent in agriculture extra. These results show that policy makers should weigh carefully the pros and cons of the direct and indirect overall economic, environmental and land use impacts of a subsidy on agricultural labour at the expense of the Pillar I budget of the EU CAP.