Payment decoupling and intra-European calf trade

The 2003 CAP reform introduced decoupled income transfers as a prominent policy instrument. However, member states were given discretion over the degree and timing of the reform implementation. As a result, different implementation schemes coexist, keeping certain parts of the income support coupled. This coexistence leads to distortions of production incentives, factor misallocations and artificial trade flows. Here, we examine these effects in the beef sector where full decoupling was not obligatory. We derive a sector-specific trade model to examine the effects of different implementation schemes on intra-European calf trade. Empirical results confirm that trade flow distortions occurred.