Abstract
After an extended process of reform the European Union has introduced direct payments to
farmers which are decoupled from production decisions as a central element of its Common
Agricultural Policy. They are also referred to as Single Farm Payments. In this paper we
analyze the production and trade effects of this policy and its compatibility with WTO
international trade rules. A survey of the literature suggests that the system of direct payments
in its present form has effects which are analogous to a subsidization of agricultural land.
Thus, they act to increase production and trade.
Furthermore we quantify the total economic cost of production...