The capitalization of coupled and decoupled CAP payments into land rental rates

Abstract

This article explores the extent to which payments under the Common Agricultural Policy (CAP) are capitalized into land rents in Ireland with implications for the transfer efficiency of such payments, since subsidies may not benefit targeted recipients if they are capitalized into input prices. Capitalization in the years preceding and following the "decoupling" of agricultural support payments from agricultural production is explored. In the period prior to decoupling, direct support (Pillar 1) payments were highly capitalized into Irish agricultural rents (67-90 cents per euro of subsidies), while in the post-decoupling period capitalization appears to have declined somewhat.