Distortions in a multi-level co-financing system: the case of the agri-environmental programme of Saxony-Anhalt

Agrarwirtschaft 56 (2007), Heft 7

• management of grassland (M6);

• management of ancient orchards (M7);

• management of crop land (M8);

• management of set aside land (M9).

Two objectives have been defined: “Environmental Quality”
and “Preservation of Agricultural Labour”. In order to assess
the coefficients of the objective function, questionnaires
have been used in which the stakeholders have been asked
to give their estimates on a scale between one (very low
impact) and nine (very high impact). The results have been
subject to discussion after which the slightly adjusted
means of the estimates have been used as coefficients.

The following restrictions have been defined:

• Budget restrictions, like upper and lower bounds for the
budget volumes for single measures (table 1, row 6 and 7).

The upper bounds for M2 to M5 and M7 reflect the
maximum possible budget for each measure, based on the
information of decision-makers. For M1, M6, M8, and
M9 upper bounds have been set arbitrarily at a high level
in order to better identify possible trade-offs between
measures.

• A restriction for the available regional budget of Saxony-
Anhalt (table 1, row 8). The coefficients of this restriction
vary according to the different levels of co-financing. Fol-
lowing the discussions on the workshops for the specific
case of agri-environmental planning in Saxony-Anhalt, it
was assumed that the amount of external co-financing
funds is not limited and thus not binding in the model.

• An upper and a lower bound for the total area of grassland
used by measures. The total bound is based on the avail-
able grassland area in Saxony-Anhalt; the lower bound
takes into account the additional policy objective to sup-
port grassland (table 1, row 9 and 10).

Table 1 shows the input matrix of the reference situation.
The tentative proposal for a budget allocation and starting-
point for the discussions is displayed in row 2. The optimal
allocation for α = 0,5 (formula 3) resulting from the
programming approach in the depicted basic situation
is displayed in row 3. The upper bounds are binding for
the measures M2, M4, M5, and M7, according to the
restrictions in Saxony-Anhalt. Furthermore, M3 gets
10.57 Mio. Euro (€), M6 gets 15.51 Mio. €, and the meas-
ures M1, M8, and M9 are not financed at all. The upper
bound for the regional budget of Saxony-Anhalt is set at
7.73 Mio. €, which is binding, as well as the upper bound
for grassland.

3. Implications of the multi-level
co-financing system

The budget allocation of the basic model described in the
last chapter can now be defined as reference situation in
order to analyse the consequences of varying assumptions
and different co-financing scenarios. The budget allocation
of the reference situation is displayed in figure 1.

It is clear that the EU multi-level co-financing system ex-
tends the financial budget for the agri-environmental pro-
gramme in Saxony-Anhalt. Figure 2 illustrates a budget
allocation of the agri-environmental programme based on
regional funds only. For this analysis the coefficients of the
regional budget have been set to 1. The lower bound of
grassland use has been reduced from 20,000 ha to 5,000 ha,
because there is no feasible solution above a bound of
14,000 ha. Without any restriction for grassland use, or-
ganic farming (M4) would be the only financed measure.
For rising levels of the lower bound of grassland use, how-
ever, M4 is increasingly substituted by M2, as this measure

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