Is Capping EU Direct Payments for Farmers Fair?

Abstract

Proposals to cap European Union direct payments for farmers are often defended as a matter of fairness. At first glance, the claim is intuitive: if support is paid per hectare, larger farms receive more, so limiting very large payments appears to make the Common Agricultural Policy (CAP) more equitable. This article argues that the fairness case is substantially weaker than this intuition suggests. First, the CAP pursues multiple objectives, and the identity of the intended beneficiary remains conceptually ambiguous. Second, the relevant distributive question concerns not only formal recipients but the ultimate incidence of support once payments are capitalized into land rents, wages, profits, and asset values. Third, the structural heterogeneity of European agriculture is consequential. In regions characterized by large-scale farming, especially eastern Germany and large parts of Central and Eastern Europe, capping would not merely reduce transfers to a small number of large recipients. It would also weaken liquidity, reduce regional value added, affect employment, and alter the competitive balance across regions and organizational forms. Drawing on payment data and model-based evidence for the Altmark region in eastern Germany, I argue that capping is less a fairness-enhancing measure than a politically expedient instrument that protects the western European family-farm narrative while imposing disproportionate costs on other agrarian structures, particularly most former socialist countries.