Impacts of Flatter Rates and Environmental Top-Ups in Greece: A Novel Mathematical Modeling Approach

AbstractThis paper examines evolutions of the Common Agricultural Policy decoupling regime and their impacts on Greek arable agriculture. Policy analysis is performed by means of mathematical programming tools. Taking into account increasing uncertainty, we assume that farmers perceive gross margin in intervals rather than as expected crisp values. A bottom-up hybrid model accommodates both profit maximizing and risk prudent attitudes in order to accurately assess farmers' response. Marginal changes to crop plans are expected so that flatter single payment rates cause significant changes to incomes and subsidies. Nitrogen reduction incentives also result in moderate changes questioning their effectiveness.Key words: Interval Linear Programming, Min-Max Regret, Common Agricultural Policy, Arable cropping, Kopais, GreeceJEL Classification: C61, D81, Q12, Q18(ProQuest: ... denotes formulae omitted.)IntroductionAfter several periods of implementation of CAP 2003, discussions on the CAP future beyond 2013 converge in further reform, mainly driven by budgetary restraint priorities. Expenses devoted to the CAP are subject to severe criticism, likely imposing accountability on social and environmental cost effectiveness. Furthermore, a re-allocation among member countries and/or activities seems inevitable. As a matter of fact, there are significant deviations among EU members if payments reported on an area basis (average receipts from pillar I in Greece 54.4 euro/ha, 29.5 euro/ha in EU 15, and even less for 12 new members 18.5euro/ha).For these reasons, various studies have been undertaken to evaluate the impacts of different policy measures meant to replace current direct payment regime. A comprehensive analysis in the context of the Health Check (EC, 2007) calculates impacts on allocation of the Net Value Added at the farm level in the EU25 for main products using FADN data. Despite its broad scope and valuable results, this study constitutes an accounting assessment not taking into consideration farmers' response concerning restructuring of the cropping plan to minimize negative impacts of policy measures to their welfare. In order to get reliable estimates useful for policy analysis, appropriate sector and regional models are required.Classic analytical tools such as crop supply and profit functions used for deriving conditional farm income estimates and factor demand functions require considerable amounts of data to estimate all cross-price supply elasticities. Moreover econometric estimates are valid only for the observed range of variation of relative prices and other variables. Mathematical models may fill this gap and derive response functions for out- put, incomes, employment and other variables implicitly by means of parametric opti- mization (Kutcher and Norton, 1982). Especially in case of substantial policy changes, mathematical programming models have been widely suggested to agricultural econo- mists (Salvatici et al, 2000). In Greece, one can mention such models focusing on to- bacco and cotton, staple crops that absorbed major alterations, following conventional linear programming (Mattas et al, 2006) and also positive models incorporating down- ward sloping demand (Rozakis et al, 2008), multi-criteria methods with non-interactive elicitation of the utility function (Manos et al. 2009) or increasing cost functions (Posi- tive Mathematical Programming (PMP), Petsakos and Rozakis, 2009) in the objective function. Multi-criteria methods and PMP, that have dominated the recent literature concerning CAP analysis, manage to transform the objective function so that optimal solutions include not only crop plans on the vertices of the feasible polyhedron but also points on hyper-plans enabling the model to approach observed levels of activities out- performing its LP counterparts.Alternatively, risk incorporation into the model may also yield optimal plans beside feasible polygon vertices. …