Decoupling and prices: determinant of dairy farmers’ choices? A model to analyse impacts of the 2003 CAP reform

The reform of European Common Agricultural Policy (CAP) in 2003 has resulted in substantial changes to the attribution of subsidies to dairy farmers. Moreover, dairy farmers are in also facing an unprecedented situation on the markets with the soaring prices of agricultural raw materials: they sell their products at a higher price (milk, meat and cereals), but must also cope with the increasing prices of concentrates. In this paper1, we discuss cross effects, on the productive strategy of French dairy farms, of the Luxemburg Agreement and the prices variations. A model based on mathematical programming has been privileged to determine how dairy farmers might re-evaluate their systems to identify optimal production plan. While respecting the principle of agent rationality (maximization of profit), the model incorporates the economic risk related to the volatility of the inputs and outputs prices. Thus the model maximises the expected utility of the income while taking into account a set of constraints : regulatory, structural, zootechnical, agronomic and environmental. The model is applied to four types of dairy farms to cope with the diversity of production systems in the west of France (“grazier” type, “semi intensive” type, “milk + cereals” type and “milk + young bulls” type). The model is used to produce quantitative estimations and support reflection through the simulation of the setting up of the Single payment scheme. The sensitivity of the results is discussed by taking into account several options of prices for cereals and livestock products. These may have a strong influence on the structure of the diet and, therefore, on the level of intensification of the forage area. The results show that the implementation of the CAP reform encourages farmers to substitute a part of corn silage by grass in the diet. However, the rising price of agricultural production encourages, on the contrary, farmers to intensify their system in order to free up land for growing cereals. We also observe that a decrease of the young bulls fattening activity to develop cereal crops is also economically profitable