Leading the way in Agriculture and Rural Research, Education and Consulting Environmental and Financial Implications of CAP 2015 reforms on Scottish Dairy Farms Katharina Schüle Supervisor: Bouda V. Ahmadi MSc. Dissertation in Ecological Economics A Linear Programming Approach

Outline Policy context Research objectives and procedure Inventory Dataset and input data Results Discussion and Conclusion 2

Policy Context Common Agricultural Policy (CAP) revised in 2013 Newly implemented in 2015 CAP aims to make agriculture more competitive and more sustainable Scottish dairy farms affected by –Abolition of milk quota –New area-based payment rates 3

Research Objectives Which financial and environmental implications arise from the CAP reform for Scottish dairy farmers? Using a linear programming (LP) model to determine optimal herd size while maximizing net profit of farms Herd size and land use as proxy for environmental implications of CAP reforms 4

Research Procedure 1.Analysis of dataset of an inventory survey (SRUC, 2013): funded by the Scottish Government Rural Affairs and Environment Portfolio Strategic Research Programme Development of a farm level LP model 2a Validation 3.Model run and analysis of results under 2013 baseline scenarios 4.Implementation of 2015 CAP scenarios 5.Analysis and interpretation of results 5

Inventory Dataset – 40 Scottish Dairy Farms 6

Input Data Input/Constraint2013Average ScenarioSensitivity Analysis Milk quotaFarm specificAbolished BPS/SFP£122£156±25/50/100% Milk price/l£0,30£0,27±25/35/50% Silage/Pasture areaFarm specific Milk yield/DMI/ME cow Farm specific Permanent labour demand Farm specific 7 Key activities: Adult dairy cows, calves, milk production, keeping pasture, producing silage, buying-in concentrate, hiring casual labour, incurring fixed costs, receiving payment supports (linked to land) Average scenario  mean prices from Low income scenario  high costs, low milk/CAP payments High income scenario  low costs, high milk/CAP payments

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Results optimization attempt

Average scenario results - Changes in herd size due to abolished milk quota 10 Mean herd size 2013: 213 Mean herd size AS: 451 Profit can only be seen in quantitative terms Extensive Intensive Mixture

Sensitivity Analysis – Milk prices – 35% milk price: £ P Q q 1 q 2 p1p1 p2p2 Mean herd size 2013: 213 Mean herd size -35% MP: 219  Evens out with lower price Tested changes of BPS by 25/50/100%  No changes in herd size Tested reduction of milk price by 25/35/50% S D S’

Conclusion and Discussion Changed BPS rates might not cause significant difference in farm management Abolished milk quota might lead to changes in herd size  Trend towards mega farms  Higher methane emissions  Increased concentrate demand means increased burden on land in Scotland and abroad Small scale, extensive farms can benefit from CAP reform in case they intensify production Majority of farms face losses in case of low milk prices  currently falling prices 12

Flaws in study and ideas for improvement Inventory on farm income Inclusion of Pillar 2 payments Transition costs are not considered in model  Increased herd size requires more housing, labour and training  Could be addressed by enhancing fix costs activities Extension with emission calculator to determine environmental consequences 13

Leading the way in Agriculture and Rural Research, Education and Consulting