1. The Impact of CAP Reform Using a General Equilibrium Model Disaggregated at the Regional Level Stefania Lovo, Riccardo Magnani, Eleonora Matteazzi, Federico Perali
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Pavia, October

2. The Micro-Macro Link as a Research Program

3. The Micro-Macro Link
Exact aggregation theory: a micro-fundated macro model (the regional farm-househld models are inserted in the macro model).
The micro (macro) level is obtained by zooming in (out) the macro (micro) level: an encompassing approach
One single source of information feeds both the micro and macro behavioral model:
the ISMEA survey about the socio-economic conditions of Italian Agriculture was designed ad hoc to construct the micro/macro link and to support a collective approach to the theory of the household.

4. Regional Model
We regionalize the macro general equilibrium model including the production /consumption technologies specific to the North, Centre and South of Italy
We do this by incorporating the SAM specific to each Italian region and corresponding household type in the macro model
The model is updated to year 2003
Includes all CAP programs (also tobacco and beets).

5. The Regional SAMs

6. A Partition of the North SAM
Table 1. SAM (PROPORZIONI) macroregione 1: NORD
sector1
sector2
sector3
sector4
sector5
sector6
1 frumento tenero
0.713
2 frumento duro
0.017
3 riso
0.999
4 mais e altri cereali
0.751
5 foraggi umidi
0.35
6 foraggi secchi
0.857

7. A Mixed Complementarity Framework: why is important
Objective: to include a feature typical of mathematical programming within a CGE
Production
Inputs (less relevant in our context)
Interregional Trade: regional demands, endogenous transportation costs (regional prices)

8. Simulation
CAP reform
Full decoupling
Are there regional differences?

9. Macro Impact: Production
Crops
North
Centre
South
Prices
Soft Wheat
2.02
-24.19
-69.63
Durum Wheat
-10.69
-19.59
Rice
-3.82
-13.02
Corn
2.94
5.69
0.43
-5.33
Fodder
16.47
5.53
1.48
-14.57

10. Macro Impact: Factor Prices
% Change of Factor Prices
Dependent Labor
0.04
Farm Labor
0.01
Agricultural Capital
0.03
- Agricultural Capital - North
-9.57
- Agricultural Capital - Centre
-12.76
- Agricultural Capital - South
-4.49
Non Agricultural Capital
0.02
Land
14.85
- Land - North
14.46
- Land - Centre
15.54
- Land - South
14.87

11. Macro Impact: Welfare Farm household - North region 0.747 0.803 0.831EV
% Change available income
% Change consumption
% Change leisure
% Change consumption prices
Farm household - North region
0.747
0.803
0.831
0.555
-0.048
Farm household - Centre region
-0.764
-0.765
-0.766
-0.756
-0.047
Farm household - South region
-0.074
-0.125
-0.150
0.013
-0.043
Rural household
0.095
0.152
0.180
0.003
-0.081
Urban household - low income
0.049
0.102
0.129
0.009
Urban household - middle income
0.059
0.105
Urban household - high income
0.075
0.120
0.143
0.006
-0.054

12. A Consideration
The push to emarginate the farms already at the margins of agriculture is quite strong especially in the South. However, these “non agricultural” farms are not the object of interest of AGRICULTURAL policy but more properly of RURAL policy, which, curiously NOT enough, can be financed by the modulation of agricultural policy. What is relevant is then COUPLING agricultural with rural policies accounting for regional differences.

13. Macro and Micro: Are They Consistent?
If not, why?
Is the micro level of analysis
complementary?

14. Conclusions I
The regionalization makes the macro model more REAL. Still needs to include interregional trade and corner production choices. Entry/exit decisions must be analyzed at the micro level for each farm-household
There is micro-macro consistency in terms of activity patterns and land prices but large differences in factor use (and related environmental impact), and income effects but still highly complementary
Decoupling gives efficiency but equity considerations at the micro level demand that agricultural policy be coupled with rural policy accounting for regional differences but with a caveat.

15. Conclusions II
Agricultural, rural (at the European level) and welfare policies (at the national level) need not overlap. Farmers in fact can have access to:
Agricultural Policy (region specific objectives)
Right of being farmer (professional farm hh)
Rural Policy (region specific objectives)
Right of being peasants (non professional)
Welfare policy (especially in the Centre)
Right of citizenship (both prof and non prof)
Keeping in mind that farmers may be income but not wealth poor, these aspects are crucial if EU ag support is to be used properly.