ABSTRACT
The agricultural sector in the European Union is undergoing a big change at present. In effect, while the sector has traditionally been the greatest beneficiary of domestic support, it is trying to adapt to a new situation where farm payments are decoupled from farm production. The rationale behind the 2003 CAP reform was to put an end to the overproduction of agricultural products that was the result of the substantial support payments European farmers were receiving and to enhance the competitiveness of farmers. Under the lemma “farmers should produce what the markets demand” the reform established a single farm payment scheme whereas payments are not linked to production anymore (therefore eventually reducing the incentives to overproduce) but they are linked to area and historical payments. In fact, farmers could decide not to produce anything at all and still receive the single farm payment. In addition, the reform introduced the concept of cross-compliance making the receipt of farm payments contingent on “good practice” with respect to environmental, food safety and animal standards. The new reform shifted the weight from direct aids (Pillar I) towards rural development measures (Pillar II). Rural development measures evolve around three main axes targeting mainly the competitiveness of the agricultural sector, the environment and the quality of life in rural areas. It is expected that the new reform will bring about changes in the employment levels of rural areas. On the one hand, the adoption of decoupled payments –by reducing the incentives to overproduce- could lead to some farmers abandoning farming activity and therefore a reduction of hired labour in some farms. On the other hand, some of the rural development measures could act as an incentive to young farmers to get involved in agricultural production and other economic activities. It was not clear at the outset what the overall effect of CAP reform on employment levels and on farmers production decisions will be (see Hennessy and Thorne 2005, Breen et al. 2005, Anton and Sckokai 2006, Gohin 2006).
