Production Effects of the European Union's Single Farm Payment

Since 1992, reform of the EU's Common Agricultural Policy has involved several rounds that have gradually changed the method of support from market-based intervention purchases to direct producer payments. The Single Farm Payment (SFP) was introduced most recently and is claimed to be decoupled from production decisions. This study examines whether or not the SFP induces extra production. The study finds that the SFP provided less production incentives and is less trade distorting than the prior system of compensatory payments. Lessons from the EU policy reform for agricultural policy reform in Canada are also considered.