Estimating crop supply response in the presence of farm programmes: Application to the CAP

This paper proposes an analytical framework allowing estimation of the effects of the new instrumentation of the CAP in the arable crop sector - price cuts, compensatory payments and land set-aside schemes - on crop acreage allocations, supplies and yields. Duality theory is used to model crop supply response in the presence of voluntary acreage control programmes and direct aids per hectare to producers. The definition of a profit function where total land is fixed but allocatable to the various crops allows us to obtain, via the envelope theorem, output and variable input equations, which can be used with the first-order conditions for an optimal land allocation as a basis for comparative statics analysis of the three main instruments of the CAP.