Decoupled Payments and the Localization of Activities
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This article considers the impacts of (de)coupled farm sector support on the locations of farming and agro-industrial activity. An economic geography model is developed which has two types of regions, one with extensive agricultural production (rural), the other with intensive farming that is more densely populated (urban). The farm and agro-industrial sectors are vertically linked. A service sector that is not directly linked to either basic industry is also explicit. We show that coupled and decoupled subsidies affect the spatial distribution of farming, industry, and service sector activity. Support that is provided to all farmers regardless of crop, thus semi-decoupled, increases spatial agglomeration. Support targeted to farmers of particular crops, especially rural comparative advantage crops, favors increased farming in rural areas but spatial agglomeration of non-farm activity still occurs. This latter targeting approach is used in the European Union.